Oral Answers to Questions

TRANSPORT

The Secretary of State was asked—

Roads (East Anglia)

Henry Bellingham: When he next expects to meet representatives of local authorities in East Anglia to discuss improvements to trunk roads.

Stephen Ladyman: We currently have no plans to meet local authorities in East Anglia to discuss trunk road improvements.

Henry Bellingham: That is a pity. Is the Minister aware that the A47 is vital to Norfolk's economic future, especially given the rapid expansion of Norwich airport and towns such as King's Lynn in my constituency? Is he aware that most of the A47 is substandard single carriageway and that many villages in my area, such as Middleton and East Winch, are crying out for bypasses? Why has the road been downgraded from a route of national importance to one of only regional importance? Will he reverse that decision?

Stephen Ladyman: No, I cannot promise to reverse that decision, as the distinction between routes of regional or national importance was made according to objective criteria on which we consulted and were discussed before they were put in place. Unfortunately, the local regional funding process gave no priority to dualling the A47. We have looked into the possibility of building small-scale bypasses for the two villages mentioned by the hon. Gentleman, but they make no economic or environmental sense in the absence of any overall dualling of the A47.

Henry Bellingham: On a point of order, Mr. Speaker. In view of the disgraceful nature of that reply, I plan to raise the matter on the Adjournment.

Mr. Speaker: In that case, I can take no supplementary questions on the matter.

Railways (Overcrowding)

Ann Winterton: What recent steps he has taken to reduce overcrowding on railways.

Douglas Alexander: We will continue to increase capacity through the franchising process and in other ways. In particular, I announced on 14 March that the high level output specification, to be published in the summer, will include a commitment to 1,000 extra carriages. They will be targeted on the most congested routes on the network.

Ann Winterton: The Government's announcement of extra carriages for longer trains is to be welcomed, but does the Secretary of State accept that many commuters and other travellers in my constituency are paying considerably higher fares for the doubtful privilege of travelling in the equivalent of cattle class? That is simply not acceptable, for reasons of comfort and, more particularly, safety. When can travellers expect to see improvements?

Douglas Alexander: With the greatest respect to the hon. Lady, what is not acceptable is for a party to suggest that it is possible to deliver lower fares, higher levels of investment—

Ann Winterton: Safety?

Mr. Speaker: Order. It is not for the Secretary of State to talk about the hon. Lady's party. He is responsible for giving ministerial replies.

Douglas Alexander: As I was saying, Mr. Speaker, that is not the approach that the Government have adopted. Instead, we have committed ourselves to 1,000 extra carriages. Moreover, it will be of particular interest to people in the Congleton constituency that bidders for the new cross-country franchise have been asked to make proposals for an increase in seating capacity of at least 30 per cent. on key sections of the franchise. In addition, I can assure the hon. Lady that we pay serious regard to passenger safety, that it is a matter of continuing concern in my Department, and that we are continuing to work on it.

Jessica Morden: Thanks to a very effective local campaign, First Great Western has reinstated much-needed commuter services at Severn Tunnel Junction in my constituency. However, the company has now reduced capacity, which has led to overcrowding. Will my right hon. Friend join me in pressing First Great Western to ensure that passengers can travel in comfort and safety on that route?

Douglas Alexander: I assure my hon. Friend that I have been in regular dialogue with First Great Western in recent months, and that I have impressed on the company that the standards of service that it has provided on those routes under its franchise have fallen below what passengers and the rest of us have the right to expect. Discussions are continuing, and work with the company is under way. It is now up to First Great Western to offer the level of improvement to which it has made a commitment.

Stewart Jackson: How much faith can we have in the Government's ability to tackle climate change when it will be another seven years—that is, 17 years since the Government were first elected—before full capacity in the most environmentally sustainable system of transport is achieved? What sort of record is that?

Douglas Alexander: I fear that the hon. Gentleman should read his brief from Conservative central office more carefully. If the guidance suggests that the problems that he describes in fact exist, perhaps he should take that up with its authors. Let me share with him some of the recent capacity enhancements that the Government have delivered. For example, the ongoing Great Western high-speed train refurbishments are increasing seating capacity by about 20 per cent. In addition, the Chiltern route upgrade between London, Marylebone and Birmingham was completed in 2005 and is increasing frequency, while the introduction of Meridian Trains on the midland main line in 2004-05 resulted in increased capacity. The hon. Gentleman is right: we recognise that there is more to do, given that more people are using the railways. That is why between February and March 2007 there was 12-car running on the south-west mainline between Southampton and Portsmouth and London Waterloo, why a new service between Kettering and London will be introduced in December 2008, and why new domestic services will be introduced on the channel tunnel rail link between Kent and London in 2009. That is the Department's ongoing work, and the suggestion that—

Mr. Speaker: Order. I call Russell Brown.

Russell Brown: Thank you, Mr. Speaker. May I also thank my right hon. Friend for his announcement of the 1,000 new railway carriages? What might be the effect on that investment of considering breaking up Network Rail?

Douglas Alexander: I have already spoken about our additional capacity and investment in the railways—for example, on the west coast main line. I do not believe it would be wise to break the west coast main line into the 14 component parts represented by the train operating companies that work on the line. The more sensible approach is to recognise that the stability of the industry structure that we have secured in recent years and the sustained investment have not only enhanced capacity on the railway but increased performance and safety.

Danny Alexander: One way of tackling overcrowding is to increase frequency. In the context of services to Inverness, two things can be done: frequency can be increased between Inverness and London through the east coast main line franchise, and Network Rail can make the necessary investment to reduce journey times between Inverness and Edinburgh to under three hours. Will the Secretary of State use his good offices to support both those outcomes?

Douglas Alexander: The hon. Gentleman is well aware that responsibility for many aspects of rail policy now rests with the Scottish Executive; I will certainly undertake to ensure that his comments are passed on.

Mark Lazarowicz: My right hon. Friend has rightly spoken about the benefits of upgrading the west coast main line. Will he look at ways of ensuring that the benefits of upgrading are felt as widely as possible by improving inter-city rail services between Edinburgh and north-west England, especially Manchester?

Douglas Alexander: My hon. Friend is right in recognising that there have been significant improvements on the west coast main line as a result of the sustained investment in recent years—not only in services operating from the north to Manchester but in services from London to Manchester, where there has been a significant transfer, or a modal shift, from use of air services to use of the train. There are potential benefits to be gained not just on a single route but in many parts of the country as a result of the investment in the west coast main line.

Alistair Carmichael: If the Secretary of State really wants to reduce overcrowding on our railways, why does his Department not try to do less rather than more? His Department has more day-to-day control over the railways than it had before privatisation. Virgin Trains wants to operate 11 carriages per Pendolino train and the rolling stock company wants to provide the carriages. Why does the Department not just butt out and let them get on with it?

Douglas Alexander: The hon. Gentleman makes an uncharacteristically ill-informed observation. I can assure him that in the correspondence and discussions that I have had directly with Virgin Trains about its proposals to increase the number of carriages on the Pendolino trains the relationship with the Department for Transport has been constructive and positive. I am confident that we will find a way through in terms of financing.
	As for the substantive allegation that the hon. Gentleman levels that there is greater operational control, it is determined by the effective operation of many train operating companies under the present franchising system, which in part explains the fact that record numbers of people now use the railway compared with previous years.

Celia Barlow: My right hon. Friend will be aware that certain rail operators such as Southern have used overcrowding as an excuse to ban bikes on trains. Will he assure me that in forthcoming strategy documents this will be reviewed? It is obviously of great environmental importance that we tie up bike and rail travel.

Douglas Alexander: A distinction can be drawn between peak-time travel, when pressure on the network is greatest, and other times, but I assure my hon. Friend that the importance of accommodating not only the commuter and business traveller but leisure travellers and those who want to take bikes on trains is recognised.

Chris Grayling: Last week it emerged that the Scottish Labour party has been holding talks with Network Rail about giving it the right to run track and trains in Scotland. May I ask the Secretary of State, who as you will recall, Mr. Speaker, is also Scottish Secretary and plays a leading role in running the Scottish Labour campaign, whether those talks have his support?

Douglas Alexander: You, Mr. Speaker, can imagine that this was a matter in which I took some interest last week. I was interested in the letter that Network Rail sent to the newspaper that published the suggestions, and I was interested in the comments of the First Minister, who said that he had absolutely no intention of renationalising the railway in Scotland. I can confirm that it is certainly not the stated policy of the Government, for the reasons that I have already outlined. It is for others to explain why breaking up the Network Rail infrastructure into its 14 component parts on the west coast main line would improve safety, performance or reliability.

Chris Grayling: As the Government always remind us, Network Rail is a private company, so let us be clear: does the Secretary of State support the principle of Network Rail running trains as well in Scotland?

Douglas Alexander: Let me make two points in response to that question. First, as I have already outlined to the House, there is a significant degree of devolution in the rail industry in Scotland as a result of a transfer undertaken by my predecessor in this office. Secondly, on the substantive point, the right focus for Network Rail is to continue to deliver not just the efficiencies secured in recent years but the engineering excellence that has led to higher levels of rail safety and performance than was experienced as a direct consequence of the Tories' botched privatisation of the railways.

David Kidney: Will the Secretary of State disregard the point made by the Liberal Democrat spokesman and take an interest in the Virgin Trains proposal for longer Pendolino trains? Is my right hon. Friend aware that the leasing company's excuse for not taking action at present is a competition investigation? Will he take action to smooth through that problem and get those trains longer as soon as possible?

Douglas Alexander: I assure my hon. Friend that it is not a prospective offer that I am making—I have already been directly involved in discussions with Virgin Trains and have spoken to Sir Richard Branson.

Night Flights

Greg Hands: What plans he has to change the regime governing night flights over London and the south-east.

Gillian Merron: There are no plans to change the new night flying restrictions that were introduced for the period between October 2006 and 2012 for Heathrow, Gatwick and Stansted airports.

Greg Hands: The way in which the Government measure the noise impact of night flights is flawed. Why are no measurements taken of noise impact in some of the worst affected boroughs, such as Hammersmith and Fulham and Wandsworth, and why do the measurements that are taken apply only to take-offs and not to landings?

Gillian Merron: Perhaps I can assure the hon. Gentleman by pointing out that the footprint is what matters. Under Heathrow's new night noise regime, which covers the six years from 2006 to 2012, although movements will be the same the noise quota will be down.

Mark Field: Everyone accepts the increasing economic importance of India and China, but does the Minister accept that early morning flights from those locations are getting ever earlier and are, therefore, disturbing the sleep of hundreds of thousands of Londoners? What will she do to try to ensure that we have a regime that keeps such night flights to an absolute minimum?

Gillian Merron: We have a strict night flight regime, under which, as I indicated, there is control both on movements and the noise quota. I am glad that the hon. Gentleman recognises—or I hope he does—that air travel benefits society as a whole, but I accept that its impacts are distributed unevenly. That is why we are keen to bear down on night noise and ensure that the quotas are stuck to. If the hon. Gentleman has evidence to the contrary, I am sure he will take it up with the airport concerned, and if he fails to get satisfaction I am sure he will draw the matter to my attention.

Justine Greening: The Minister will be aware that operators that run excessively noisy planes can be fined. I am sure she is also aware that last year the average fine for an excessively noisy plane was only £570—probably not enough to buy a seat on most flights. Does she agree that a £570 fine is unacceptably low and, if so, what will she do to make sure that we properly clamp down on plane operators who breach noise limits so that it makes a difference to their behaviour?

Gillian Merron: The best way forward in reducing noise is, first, to acknowledge that new aircraft are getting quieter, and we have worked towards achieving that. In addition, there are better operational practices, which the Government have encouraged, as well as a move to improve international standards through discussions in the international community. Those are the strongest and most direct ways to reduce noise and inconvenience to the hon. Lady and other constituents.

Bus Services

Roberta Blackman-Woods: What funding he has allocated to bus services up to 2015; and if he will make a statement.

Gillian Merron: Public funding of bus services now totals £2.5 billion annually. Decisions on the allocation of departmental funding in future years will be taken later this year as part of the current comprehensive spending review.

Roberta Blackman-Woods: I thank my hon. Friend for that reply. Will she confirm that some of the money will support local authorities such as County Durham, which is developing plans to improve bus services in the area? Following the publication of "Putting Passengers First", how quickly is her Department likely to respond to restructuring bids?

Gillian Merron: My hon. Friend's support—and that of her local authority—for "Putting Passengers First" is extremely welcome. I am glad to hear that County Durham is working with operators to improve punctuality and services. It can also start to prepare the ground for community transport being given a greater role. I encourage my hon. Friend to support the authority in responding to the consultation on the draft road transport Bill. I look forward to meeting a delegation and would be happy to discuss my hon. Friend's points.

Mark Pritchard: Is the Minister aware that my constituents in Newport, Shropshire have to take up to three buses to visit Princess Royal hospital as out-patients? Does she agree that that is unacceptable, and will she undertake to meet me and a delegation from the hospital to discuss public transport to and from the Princess Royal so that elderly people in particular do not suffer from having to make such long journeys?

Gillian Merron: I am happy to agree to such a meeting, as the hon. Gentleman has requested. Of course, "Putting Passengers First" is all about providing the biggest shake-up of buses for some 20 years since deregulation under the Conservatives. It is rewarding to see that the Opposition now admit that they got it wrong, but I would indeed be delighted to meet the hon. Gentleman.

Graham Stringer: First Group, Stagecoach, Arriva and other bus companies are increasingly ripping off the public purse. They withdraw from ordinary routes in order to get subsidy on routes that are perfectly viable and they put up fares to get extra money out of the concessionary fare system. In that context, I welcome "Putting Passengers First" as a way of tackling that problem. The passenger transport executive group has estimated that the proposals would take—

Mr. Speaker: Order.

Graham Stringer: And that is too long.  [Laughter.]

Gillian Merron: It appears that the question, if not the process, was too long. If my hon. Friend is referring to "Quality Contracts", the estimate is some 14 to 20 months, but we are working closely on that with stakeholders, including PTEs. We will publish a draft timetable alongside the road transport Bill.

John Leech: Why will the Minister not support direct Government payments to bus companies to cover the cost of free bus journeys for the elderly to ensure that no local authority or PTE area is short-changed?

Gillian Merron: The extension of concessionary fares to cover 11 million people who are able to have free national off-peak travel is a very welcome Government policy. I am keen to ensure, as are all parties, that we have the right system of reimbursement. We are working with all the relevant people to find the right way forward. My interest is in ensuring that those 11 million people all benefit from the £1 billion of Government investment and free off-peak travel and that they can get out and about.

Gwyneth Dunwoody: The bus pass scheme has transformed the situation for many elderly people in my constituency, who are delighted with their ability to roam. Would my hon. Friend please make a special effort to ensure that new powers are given to traffic commissioners so that they can insist that the companies getting large subsidies actually deliver value for money? That would be a nice change, and we would all be delighted by it.

Gillian Merron: I am, as always, delighted by my hon. Friend's informed support of Government policy to help older and disabled people up and down the country. I agree about traffic commissioners, who will have a greater opportunity to bring local authorities as well as bus operators to account on issues of punctuality, which are of great importance.

Eddington Report

Tom Brake: What plans he has to take forward recommendations of the report by Sir Rod Eddington on transport; and if he will make a statement.

Douglas Alexander: The Government set out in the December 2006 pre-Budget report how we intend to take forward the recommendations of the Eddington study, taking account of transport's wider economic, social and environmental objectives. In the coming months, the Government will review their strategy, processes and delivery on transport in the light of the Eddington and Stern reports. We will provide a detailed response to the Eddington study alongside the comprehensive spending review later this year.

Tom Brake: Eddington states that two priorities for transport policy should be expanding airports and relieving congested and growing city catchments. The Government are quite keen on the former, but less so on the latter. Can the Secretary of State confirm when a decision is going to be taken on what must be the best example of a project to relieve a congested and growing city catchment area—Crossrail?

Douglas Alexander: I would not entirely accept that characterisation of the Eddington study. Eddington had three principal concerns: first, the challenge of growth cities; secondly, inter-urban connections; and, thirdly, global gateways, which include our ports as well as our airports. On the substantive point that the hon. Gentleman made, we continue our support for Crossrail. There has been real progress with the Bill and we have made it clear that a decision about Crossrail will be made in the context of the spending review.

Eric Martlew: Yesterday, Sir Rod Eddington indicated at the Select Committee hearing that by 2014 the west coast main line would be running to full capacity and that there is a business case for a high-speed line, but the fact is that there is a lead time of 10 years. When will the Minister announce that there is going to be a new high-speed line on the west coast?

Douglas Alexander: With due respect to my hon. Friend, one of the intriguing features of the discussion about the high-speed train line is the number of hon. Members who presume that it will stop in their constituency. In fact, Sir Rod Eddington gave a searching critique of the case for a high-speed rail line in the course of his report. We have a separate manifesto commitment that we will give consideration to a high-speed rail line and we are reflecting on the recommendations and the insights in relation to the high-speed rail line in the Eddington report at the moment.

Bob Neill: Is not our distance from getting anywhere near Eddington's recommendations on dealing with commuter congestion demonstrated by the fact that Southeastern trains is reported in last night's  Evening Standard to be proposing to weigh commuters as they get on to the trains serving my constituency, to see just how overcrowded the trains are? Will the Minister come to my suffering and physically challenged constituents' aid with an announcement of significant capacity enhancements on the London commuter network?

Douglas Alexander: I note with civility that the hon. Gentleman did not note any interest before making the observation. He really should not believe everything he reads in the newspapers. As hon. Members can imagine, I took some interest in that story in the  Evening Standard. The suggestion was that one of the train operating companies is weighing carriages—rather than individual passengers. Perhaps he will be relieved to hear that. It is, however, fair to say that there is a real challenge in relation to capacity in the south-east and across the network. That is why we have announced the 1,000 extra carriages and why it will be one of the key priorities for the high-level output specification.  [ Interruption. ] From a sedentary position, the hon. Member for Epsom and Ewell (Chris Grayling) suggests that there will be no new carriages until 2014. That is simply untrue. The first of the carriages will be available on the network by the end of next year.

Jim Devine: One of the central parts of the Eddington report was the importance of supermarkets and their distribution networks. I wonder whether my right hon. Friend shares my concern about the behaviour of Tesco in my constituency. On the day that it announced £2.5 billion of profits, it is cutting the terms and conditions of staff, threatening derecognition of the union and telling staff that unless they sign a new contract they will be sacked. Will he tell Tesco to go back to the negotiating table and resolve the dispute?

Mr. Speaker: Order. That question certainly was not about transport.

Owen Paterson: Sir Rod Eddington said that unless national road pricing was in place by 2015 there would have to be a substantial increase in inter-urban road building. Are the Government going to have national road pricing up and running by 2015? If not, what are they going to do?

Douglas Alexander: As I have stated many times at the Dispatch Box, the position remains that we believe that the right way forward is first to have local pilots, developing local solutions to the congestion challenges in local communities. On the basis of the facts that emerge from those local congestion charging experiences, we will be able as a country to make a judgment on the merits of a national system of road pricing.

Rail Services

Madeleine Moon: Whether his target for railway punctuality and reliability has been met.

Tom Harris: The March 2006 target of 85 per cent. punctuality and reliability was met with performance reaching 86 per cent. by that date. Since then, the Department for Transport has been working successfully with train operating companies to create the conditions for further improvement. Punctuality and reliability on the railway are now at 88 per cent. on average.

Madeleine Moon: I thank my hon. Friend for his reply, but I have to tell him that punctuality and reliability are not words that my constituents in Bridgend use in relation to First Great Western. I know that that is true among the constituents of my colleagues along the whole of the south Wales corridor. What meetings is the Minister having with First Great Western, and will he please press it to start to improve its reliability and punctuality?

Tom Harris: My hon. Friend knows that I have raised First Great Western's performance with the company on several occasions. It accepts that its performance following the production of the December 2006 timetable was not acceptable. I know that my hon. Friend will welcome the recovery plan that has been drawn up jointly by First Great Western and Network Rail to improve performance. I assure her that my right hon. Friend the Secretary of State and I will continue to apply any pressure necessary to bring about the improvements in performance that we wish to see.

Geoffrey Clifton-Brown: In terms of distance from London, the train service to Gloucestershire is one of the worst in the country. To improve the reliability and punctuality of the service—again, it is operated by First Great Western—would the Minister support an increase in rail capacity when that is put to him by Network Rail? The company has feasibility money to dual the line from Swindon to Kemble and from Oxford to Worcester Shrub Hill. Will the Minister support those proposals when they come before him?

Tom Harris: Of course, the Government are always willing to consider capacity improvements when there is a robust business case. If the hon. Gentleman wishes to write to me with more details of the proposal, I will be more than happy to look at them.

Si�n James: Given the horrific experience that we have recently been having in Swansea with First Great Western, when the Minister meets the company will he look for a commitment above and beyond its existing franchise? While the company has the franchise agreement now, I am severely worried about the service in the future.

Tom Harris: I know that my hon. Friend has campaigned long and hard on this issue. She will understand the Government's position: we must have certain minimum specifications. Unlike the Conservative party, we believe that a minimum level of service that must be provided by franchisees should be written into franchise agreements.
	I know that my hon. Friend is especially worried about the removal of the 17.15 service from Cardiff to Swansea and the effect of overcapacity on services run by Arriva Trains Wales. She will know that I went down to Cardiff two months ago and travelled on the Arriva Trains Wales connecting services from Cardiff to Swansea. I know that she will be disappointed that I found that there was plenty of spare capacity on those services. However, I will be more than happy to speak to First Great Western to ensure that it meets its commitments under the franchise agreement.

Bob Spink: I am sure that the Minister will acknowledge the great improvement in reliability and punctuality on the c2c line since it was privatised. However, is he aware that some of my constituents were trapped on a train last week for more than seven hours because of problems on the line? Will he look into bringing forward work on the line's signalling and overhead power lines?

Tom Harris: I am delighted that the hon. Gentleman acknowledges the improved efficiency and performance on the rail network. There are inevitably occasions when passengers are inconvenienced, which is always a matter of some regret. However, I hope that he will acknowledge that the record amounts that are about to be invested in the network by Network Rail will lead to a major step change in the improvement of the infrastructure in this country.

Rail Services

Robert Flello: What effect the west coast main line upgrade has had on travel times.

Tom Harris: Journey times on the west coast main line have already been substantially reduced and will be further improved with completion of the west coast route modernisation in late 2008. Stoke-on-Trent is now an hour and a half from London. Before September 2004, the journey took almost two hours.

Robert Flello: I am grateful to my hon. Friend for his response. As a result of the fantastic improvements to rail services and times, my constituents can transact business with London. Indeed, Stoke-on-Trent is now an excellent place for business. When my hon. Friend next discusses with Network Rail further improvements to train times along the west coast main line, will he press it on the fact that, after almost 50 years, Longton railway bridge still awaits a repainting job?

Tom Harris: I know the Longton bridge extremely well, and I am distraught to hear that it has not yet been painted, after all these years. If my hon. Friend wishes me to raise the issue with Network Rail on his behalf, I am more than happy to do so.

Mark Lancaster: Train times from Milton Keynes have actually increased, because Virgin trains no longer stop there during peak hours. As the Minister may recall, back in January I raised the fact that Milton Keynes commuters are upset that although two Virgin trains do stop there, no one is allowed to get on the trains, despite there being more than 300 seats on each train. At the time, the Secretary of State said that the issue in Milton Keynes was the platforms, but that has now been changed, and he has admitted that there is no issue with platform lengths in Milton Keynes. May I finally have an answer on why those two trains stop in Milton Keynes to let people off, but do not allow anybody on?

Tom Harris: The Pendolino trains do not pick up passengers at Milton Keynes because they are designed not for short-distance commuter traffic, but long-distance traffic. They are not designed as relatively short-haul commuter business services, which are provided by Silverlink and will be provided by the new west midlands franchise.

Brian Jenkins: I congratulate Virgin Trains on the remarkable progress that we have made on the west coast line. With luck, next year we will be back to the times that we achieved in the mid-1960s, when the west coast electrified line was first introduced. The one thing that we have not achieved is a programme that serves the users of the west coast line. There are still too few trains that stop to pick up people at towns such as Tamworth, although many more trains stop at stations down the line that serve smaller populations. Will the Minister look at the way timetables are organised there, particularly as that is where the cross-country lines cross the lines that run from the top to the bottom of the country, which means that a hub station should be created at Tamworth?

Tom Harris: Work is still under way on the timetables for late 2008 and early 2009, and I cannot make any comment on the service that Tamworth will receive, but I hope that my hon. Friend will accept that the west coast main line modernisation will provide a major economic boost to the whole country and will provide a much-improved service for the many hundreds of thousands of passengers who use that service every year.

Road Funding

Neil Turner: What funding commitments have been made for roads up to 2015; and if he will make a statement.

Stephen Ladyman: We will consider future levels of funding in the light of the outcome of the comprehensive spending review.

Neil Turner: I am grateful for that reply. I am sure that the Minister is aware that good transport links are an important factor in stimulating local economies. Will he ensure that there is sufficient capacity in his departmental budget, and in the regional development agency budgets, to make sure that local economies can be stimulated by new road links to any new developments built in the period that I mentioned?

Stephen Ladyman: Of course my hon. Friend is absolutely right, and the regenerative effects of new road links are one of the things that have to be taken into account when road schemes are prioritised. However, it is important for him to interact with local stakeholders, whose advice we now rely on when prioritising funding. The funding that we get for road improvements will be distributed fairly across the country, and then we will work with local stakeholders to decide how to prioritise the spending.

Christopher Fraser: Norfolk's economic success is being stifled by the Government's lack of investment in the roads infrastructure, as my hon. Friend the Member for North-West Norfolk (Mr. Bellingham) pointed out. Will the Minister finally join me in saying yes to the upgrade of the A11, which needs to take place if Norfolk is to realise its true economic potential?

Stephen Ladyman: I admire the hon. Gentleman's advocacy of that road scheme, but I again offer him the advice that I have given him on several occasions: it is necessary for him to win the support of local stakeholders if he is to get the scheme prioritised, so that work on it can start within the time scale that he wants. At the moment, the scheme is prioritised, but it will not happen as quickly as the hon. Gentleman would want. It is for him to go back to regional stakeholders and increase the priority of the scheme. By the by, it might be a good idea if he and his colleagues supported some of the measures that the Government have put forward to raise the money to pay for the road improvements that he and his colleagues want.

David Clelland: The last time there was any major investment in the Gateshead A1 western bypass, which runsor should I say crawlsthrough my constituency, was more than 20 years ago. When can we expect further investment to bring that important artery up to national standards?

Stephen Ladyman: Once again, significant investment in road improvements is being made in the north-east, but my hon. Friend must work with local stakeholders to achieve priority for schemes that he wants in his area. We are trying our best to stick as closely as possible to priorities recommended to us by the local regions, and we will continue to do our best to stick to those priorities.

Nicholas Winterton: The Minister said in reply to a supplementary that resources for roads would be allocated fairly across the country. There are many Opposition Members who would think that that was an untruth, but I do not accuse him of telling an untruth to the House. Will he give me an assurance that resources will be allocated fairly and that Conservative authorities such as Macclesfield borough council and Cheshire county council, which have been under-resourced, particularly in east Cheshire, will in future receive a fair allocation of resources in accordance with the prosperity that they create in Cheshire and the north-west.

Stephen Ladyman: When we decided to go for a regional funding allocation, we began with an open consultation, which included all the regions, local authorities, and Opposition Members, to decide how the money was to be allocated to the regions. We have stuck to that formula, so it is clear that the money has been fairly distributed. I have received representations since then from every region in the country saying that they would like to change the system, because they have come up with a system that would benefit their region at the expense of every other region. I am afraid that life is simply not like that, and if we want more money for the regions we must raise more money overall, and that comes down to the hon. Gentleman and the Opposition occasionally supporting the Government in raising that money.

CONSTITUTIONAL AFFAIRS

The Minister of State was asked

Electoral Fraud

Tom Brake: What recent steps she has taken to prevent electoral fraud in local elections.

Bridget Prentice: The Government have taken significant steps in recent years to tighten up the security of the electoral process, and to assist police and prosecutors in tackling electoral fraud. Those measures are primarily established by the Electoral Administration Act 2006, and associated secondary legislation.

Tom Brake: I welcome those improvements in security, but I am sure that the Minister agrees that the introduction of postal voting damaged public confidence in the voting system because of the increased risk of fraud. What specific parallel measures has her Department introduced to ensure that the internet, telephone and advance voting pilot projects, too, are not subject to fraud?

Bridget Prentice: First, may I make it clear that incidents of fraud remain isolated, and have arisen in a relatively small handful of wards? As for the pilots, we have put in place clear security measures, which will be monitored by the Electoral Commission and by ourselves. Every local authority that has asked to pilot innovative ways of allowing people to vote has done so in the clear knowledge that it wants to make sure that the system is as secure and accessible as possible.

Alan Whitehead: Does my hon. Friend the Minister agree that an important weapon in combating electoral fraud is the requirement to ensure that the electoral register is accurate and up to date? Will she therefore place a duty on electoral registration officers to use all available databases to make sure that the registration system is as accurate and up to date as possible?

Bridget Prentice: My hon. Friend makes a very important point. As I have often said at the Dispatch Box, the fact that 3 million people are not on the register who should be on it is a slight to our democracy and something that we must challenge. He is quite right, too, that the Electoral Administration Act has given local registration officers further powers to use all means of registration to ensure that people who are eligible to vote are on the register and able to vote. I am constantly hearing about new ways of trying to provide further opportunities for registration officers to make such changes.

Andrew Robathan: The Minister seems to be living in a slightly different world from the rest of us. Has she read Sir Alistair Graham's speech in January, in which he said:
	How does DCA or the Electoral Commission know about the extent of electoral fraud when neither of them have kept any statistics nor have undertaken any research on the issue? Is it that, in their obsession with increasing participation at all costs, they have turned a blind eye to the risks of electoral fraud and its consequences on the integrity of our democratic system?
	Will the Minister respond to Sir Alistair Graham, who made a telling point?

Bridget Prentice: Frankly, Sir Alistair Graham made no such thing. In that speech, which I have read in detail, Sir Alistair Graham waved about the figure of 390 cases of electoral fraud. In fact, the Electoral Commission has been conducting a detailed analysis of those cases, and so far it has discovered that very few of them include allegations relating specifically to voting offences. Sir Alistair Graham and the hon. Gentleman need to understand the difference between offences involving under-age candidates, imprints on leaflets and so on and offences involving people personating others and other kinds of voting fraud. Those are very different things, and they should not be put in the same basket.

Chris Bryant: Has the Minister had the opportunity to read the Electoral Commission report on allegations of electoral malpractice between 2000 and 2006? It shows that in 25,057 elections in seven years there were only 91 cases involving any allegations of electoral malpractice. That represents 0.00363172 per cent. of elections in which there was even an allegation of malpractice. Is it not more important that we make sure that everybody has a chance to vote as easily as possible than following up the rumour-mongering and scandal-mongering by Opposition parties?

Bridget Prentice: I could not have put it better myself.

Oliver Heald: The Minister will know that the Committee on Standards in Public Life warned that impersonation was the most common form of electoral fraud. The election commissioner in Birmingham warned that well-organised fraudsters were getting away with scores of personated votes. Given that, which Minister is responsible for the latest fiasco that the new laws to tackle impersonation will not be introduced for this year's major set of local elections, because they were so badly drafted? Is that not yet another sign of Government incompetence in the face of growing corruption and fraud?

Bridget Prentice: The hon. Gentleman is just plain wrong. In the local elections in May, there will be personal identifiers for postal votes, which is where there have been allegations in the past of possible fraud. All local authorities involved in local elections in May have already sent out all the information to potential postal voters, and I am confident that they will work as hard as possible under the guidance of the Electoral Commission and with the support of the police to ensure that our elections are, as my hon. Friend the Member for Rhondda (Chris Bryant) has said, as safe, secure and democratically available as we can possibly make them.

Royal Prerogative

James McGovern: If she will conduct a review of the scope and use of royal prerogative powers.

Bridget Prentice: As I said on 30 January, the Government keep policy in that area under review but do not see the case for a wide-ranging consultation exercise at this time.

James McGovern: The BBC recently described royal prerogative powers as
	A series of historic powers, officially held by the Queen, that have, in reality, been passed to politicians.
	Royal prerogative powers allow decisions to be taken without the backing of or consultation with Parliament. Does the Minister agree that in a democracy, decisions taken without the backing of or consultation with Parliament should be illegal? May we have a review to address that anachronistic anomaly once and for all?

Bridget Prentice: My right hon. and learned Friend the Lord Chancellor provided a statement on the Government's position on this in the House of Lords on 7 February this year, at  Hansard column 705. Moreover, the Prime Minister is very keen to ensure that Parliament has its views known, and he has made statements to that effect in recent months. In 2003, for example, there was a substantive motion in Parliament on the Iraq war. We are of course prepared to legislate to constrain the prerogative powers when it is appropriate to do so.

Simon Hughes: Given that in 2004 the Select Committee on Public Administration said that
	the case for reform is unanswerable,
	as we come to the end of 10 years of Blair-led Labour Government where ministerial Executive power remains as great as ever, will the Minister accept that making peace and war, making treaties such as the extradition treaty and taking away passports from British citizens in Guantanamo Bay are matters that should be governed not by Ministers but by Parliament, and that unless the Government move on this they will remain a Government who seem to be more keen on retaining power than sharing it?

Bridget Prentice: We should be cautious in this field; let me give an example of why. We must be careful about introducing legislation in some of these areas where we would then have the undesirability of their being overseen by the courts, which would not necessarily be a good thing. Indeed, it should be for Parliament, rather than the courts, to comment on some of these issues. The Government have to be accountable to Parliament for their decisions, including decisions on the deployment of armed forces. Parliament's rights are therefore fully protected under the existing arrangements. That does not mean to say that the Government are not prepared to look at prerogative powers again. We have done that in the past and we are still prepared to do so. We will continue to listen to views on the subject, although at the moment we see no reason to do anything different from the present situation.

Kelvin Hopkins: I agree most strongly with my hon. Friend the Member for Dundee, West (Mr. McGovern). Would it not be useful for my hon. Friend the Minister to look at other parliamentary democracies, especially those with constitutional monarchies such as our own, to see how they do things and perhaps to make some progressive reforms in the light of that?

Bridget Prentice: It is difficult to translate specific constitutional arrangements from one country to another. Procedures in the United Kingdom must reflect our constitutional arrangements. There are occasions when the Executive's ability to take decisions quickly and to be flexible in using the prerogative powers remains an important cornerstone of our constitution. I am not sure that one can easily transfer what may be good in one country to make it fit here. However, as I say, we constantly keep all these matters under review.

Geoffrey Clifton-Brown: Does the Minister agree that the most important royal prerogative is that of taking this country to war? Can she conceive of a situation whereby we would take this country to war without the endorsement of this House? If so, would she consider changing the royal prerogative in this respect?

Bridget Prentice: The hon. Gentleman asks whether I can conceive of a situation arising in relation to going to war. In order to reassure him, let me quote what the Prime Minister said:
	I cannot conceive of a situation in which a Government...is going to go to warexcept in circumstances where militarily for the security of the country it needs to act immediatelywithout a full parliamentary debate.
	That sums up the Government's position very well.

Andrew MacKinlay: I am pleasantly surprised to be called. The Under-Secretary said that she would listen carefully to representations. May I draw it to her attention that nobody has spoken in favour of her conservative position on the matter? There is a case for root and branch review of the power of the monarchical institution, including the prerogative powers, which are not always exercised only by Government. The right hon. Member for Suffolk, Coastal (Mr. Gummer) drew attention to the fact that no Catholic has been made a member of the Order of the Thistle for hundreds of yearsthat is royal prerogative. It is unacceptable. We need to re-examine the whole monarchical institution.

Bridget Prentice: Although I may have a great deal of sympathy with my hon. Friend's example, I have said repeatedlytoday and on other occasionsthat we keep such matters under review. I shall take the specific example back for further consideration.

Postal Voting

James Duddridge: What mechanisms are in place to verify the legitimacy of postal votes.

Bridget Prentice: We are introducing a range of new measures at the May 2007 local elections that are designed to strengthen the security of postal voting. They build on the measures that were successfully introduced in May 2006. The introduction of personal identifiers for postal voters is especially important and will help ensure that postal votes are safe and secure.

James Duddridge: During the passage of the Electoral Administration Act 2006, I raised with the Minister of State advice from the banking sector and subsequently wrote to her. The Under-Secretary kindly replied in April last year. Will she update the House on the discussions with the banking sector and their results?

Bridget Prentice: I must apologise to the hon. Gentleman and the House. Thanks to his question, I have discovered that no such discussions took place. It is often said that Questions were asked in the HouseI shall certainly ensure that questions are asked elsewhere about why the discussions have not yet taken place and that he is informed of them as soon as they do.

Rosie Cooper: Has the Department put in place any mechanism to examine how many people have not renewed their postal votes under the new regime? Will the Department consider the effectiveness of the verification procedures after the elections?

Bridget Prentice: I assure my hon. Friend that we will consider carefully, with the Electoral Commission's support, the effect of the new legislation on postal voting. We are constantly gathering information about the number of people who apply for postal votes. We will ensure that we can make comparisons about the new system's effect on the electorate.

Jonathan Djanogly: In response to a written question of mine on 28 March, in regard to postal vote fraud, the Under-Secretary said:
	The Government do not consider there is sufficient justification to make further changes that would restrict the availability of postal voting... as is the case in Northern Ireland.[ Official Report, 28 March 2007; Vol. 458, c. 1597W.]
	Does the Under-Secretary claim that availability to vote surpasses the integrity of the vote? Is not that Government approach one of extreme complacency?

Bridget Prentice: The hon. Gentleman constantly raises the example of Northern Ireland and I constantly have to remind him that the measures that we took in Northern Ireland meant that registration dropped by more than 10 per cent. Approximately 3.5 million people who should be on the register in England and Wales are not. That is a great democratic deficit. It might suit the Conservative party for fewer people to be on the register and able to vote, but it does not suit those of us who believe in democracy.

Alan Beith: Why did not the Under-Secretary ensure that all the secondary legislation was correctly drafted and in place to give returning officers the full power to enforce the postal vote safeguards in the way that Parliament intended?

Bridget Prentice: The right hon. Gentleman is right. It is most unfortunate that we could not do what he suggested. We will ensure that the regulations are drafted correctly in future. It was unfortunate that we could not get that right for 3 May, but I hope that we shall ensure that everything is exactly as it should be in future.

Legal Aid

Philip Dunne: What recent representations she has received from law firms in rural areas on legal aid.

Vera Baird: I have received oral and written representations from rural law firms and their representatives as part of the ongoing consultation into the implementation of our legal aid changes. I have personally been to more than 25 meetings with 1,000 practitioners, including many rural providers, and we took their concerns heavily into account when we revised our proposals and published them earlier last year.

Philip Dunne: I am grateful to the Minister for that response. I assume that, having listened to those representations, she will be fully aware of the concerns such as those expressed by the solicitors in my constituency that the few who still provide legal aid services in rural areas are actively contemplating withdrawing from those services as a result of the Government's proposals. What will then happen to vulnerable people in rural areas who cannot get representation under legal aid?

Vera Baird: We have just been through an exercise in renewing a contract for legal aid in almost identical terms to the one that prevailed before. A number of firms said that they would not sign because they did not intend to carry on, but I am pleased to say that, in the end, all of them did. If the hon. Gentleman has any particular difficulties in this regard, I would ask him please to come and see me about them, but we are confident that rural providers will do well out of our proposals.

David Taylor: I asked the Minister a similar question to this on 6 March, and I then discussed her answer with representatives of a local firm in which I have great confidence. They said that the new contract proposals for family and criminal work amounted to financial suicide, that they had been signed under duress and that many firms would indeed back out in an orderly fashion later this year. Is there not a real risk that we are creating a national chain of Advocacy Is Us, which will be based in cities, providing a service that is down to a price rather than up to a standard, and which will denude rural areas?

Vera Baird: No, there is not the slightest likelihood of that happening. I am anxious to encourage smaller firms to stay in business. The family fees do not represent financial suicide; they have been put together with a lot of input from the profession, for which we are very grateful. Nor do the criminal fees, which have also been put together with the greatest possible care. They are based on the average claims in the areas of the police station duty rotas. All of this involves the same budget as before. Everyone should have the confidence to go through the transition, as the signatures on the contracts now suggest is happening. They must get over the transitionit is not a simple one; I accept thatand then look forward to a very good future in legal aid.

Elfyn Llwyd: To be fair, the Minister has engaged with people who are complaining about services in rural areas. However, I have a letter here from a specialist in mental health law, Julie Burton, which is addressed to the Lord Chancellor. In it, she says that publicly funded legal advice lawyers are leaving the service in droves. She is the only mental health lawyer in the whole of north and mid-Wales, but she, too, is going to give up. She has dedicated her life to this work but, after 25 years, she can see no alternative.

Vera Baird: With great respect to the hon. Gentleman, he is not correct to say that firms are leaving in droves. Of the solicitors who had signed up to the last contract, 94 per cent. have signed up to the new one. That does not suggest that they are leaving in droves; it represents a pretty average fall-away. I am sorry to hear about the lady in Wales. We will have to look for someone else who can provide that service to the vulnerable population that she serves, but I hope that she will reconsider.

Planning (Consultation)

Ian Liddell-Grainger: I beg to move,
	That leave be given to bring in a Bill to require local planning authorities to consult or notify persons living outside their area about specified matters; and for connected purposes.
	I must say that this is the best attended 10-minute rule Bill debate that I have ever come across. The title of the Bill is unlikely to set the world on fire. It will certainly not result in dancing in the streets or spontaneous outbreaks of public joy. I am sorry, folks, but the Planning (Consultation) Bill sounds profoundly dull[Hon. Members: Hear, hear!] I am getting cheers of support. In reality, however, it is important to everyone.
	The law of planning has become a dangerous, bureaucratic minefield. It is said that there are only three people left in England who are capable of understanding it: one died young; one fled the country; and the other expert has now gone completely mad. It is understandable why. Anything to do with planning usually involves piles of paperwork, loads of legislation and acres of anxiety. People who are seeking permission to put up a porch at the front of their house will know, as will hon. Members, exactly what I am talking about. That person needs the householder application form, perhaps listed building consent and, let us not forget, the full and outline applications and the lawful development certificate. He will even need to give a consent form to the council to put up a notice. By now that person will have filled up enough of an official's bumper mailbag to paper the walls of Buckingham palace and Westminster abbey. The application will have been scrutinised by planning officers, subjected to all the rigours of building regulations and put out to the public for their viewsor will it?
	I am concerned about several aspects of the existing public consultation. The whole process is extremely vague and open to different interpretations by different officials in different town halls. What happens in one place is not necessarily what happens in the district next door, but with the agreement of the House I hope to introduce an improvementsomething to make life more sensible for those at the sharp end of the planning maze.
	Consultation should mean what it says on the packet. We need a decent definition of the word itself. The Pocket Oxford English Dictionary suggests the following meaning:
	seeking information or advice...taking into consideration the views of people
	and importantly
	considering feelings.
	I am quite sure every planner and politician in the land would endorse those sentiments and vow that consultation is a splendid thing and part of everything they do for everybody. However, it is rather like motherhood and apple pie: no one could possibly disagree with the general idea. But with such a woolly meaning, consultation can be as good or as bad as politicians or planners prefer.
	The trouble is that too many planners and politicians are prepared to settle for the barest minimum when it comes to the standard consultation period. The blame lies, I am sorry to say, right here in Westminster. The House has always fought shy of spelling out what consultation should behow local people are to be canvassed, how views are to be assessed, what account is taken of opinions, how many meetings will be held, or whether there be any meetings at all. The remit to consult is certainly written into all local government legislation, but dotting the i's and crossing the t's has always been left to the locals. Basically, the House has, I am afraid, copped out.
	The aim of my Bill is to give an exact definition of the term consultation and to ensure that the relevant people are consulted. Surely it is such a sensible aim that nobody could possibly object to it. I still wonder why it was not introduced years ago. To illustrate my point, I shall give a real-life example of how our planning system can let down the people whom it is meant to protect. A farmer wanted to put up a new poultry unit in my constituency. Farmland frequently straddles authority boundaries. This farmer bunged in the planning application to the council for the area where the unit was proposed, but the council had no legal obligation to tell the people a couple of hundred yards away about it because they lived in another local authority area. The result was a lot of disgruntled folk who thought that they were being cheated.
	The problem is not just a rural one, however. If someone wants to build anything in his urban back yard and the local authority boundary is close by, the people who ought to have a say do not get it. That is plainly wrong and should be put right, and this is where the political controversy may begin, because there seems to be a conflict between those who want to free up the planning process and see applications go through more quickly and those who would like the public to get a bigger voice. I believe that the two goals are not incompatible.
	I am absolutely certain that the law as it stands leaves an awful lot to be desired. It also leaves a lot of people dissatisfied. Some things have been done to ease the burden of those who wish to submit planning applications, and in almost every area it can be done online by computer, cutting out paperwork and trips to the council offices. The quid pro quo is that councils are beginning to use their online services as an excuse for consultation. Someone can make an online planning application and people can see it [Interruption.]

Mr. Speaker: Order. There is so much noise in the Chamber that it is unfair to the hon. Gentleman.

Ian Liddell-Grainger: I am not offended by having my Bill talked about, Mr. Speaker! In fact, it is a great accolade.
	Information technology has become a get-outa way of avoiding telling people what is going on.
	I appreciate the dilemma faced by local authorities. Some planning areas are very busy. In Wandsworth, here in London, 30,000 consultation letters were sent last year. However, the obligation actually to do anything is non-existent. The only requirement is for a period of 21 days during which action can be taken. The planning authority has a duty to put up notices, usually in small print on A4 pieces of paper pinned to telegraph poles. One needs a magnifying glass to decipher what they say, and one would have to be a planning anorak to stop and read one in the first place. Bigger developments require a planning authority to buy one tiny advertisement in the local paper, which is usually hidden away on page 99 if it gets that far. There is a woolly commitment to consulting interest groups, residents andhow I hate this wordstakeholders. The politician who coined the word should be made to use a stake himself.
	There are good intentions, but they are not law. Every planning authority can do as much or as little as it likes to keep people posted; no planning authority has any legal obligation to tell people outside its areas what is going on. That means that unless there is a planning application to build a nuclear power station, an airport or a Tesco store, they will not be told. That deficit in the planning process makes a mockery of the existing law, and seriously undermines what has become a major cross-party commitment to be seen to be consulting.
	The Government swear by consultation. Hundreds of different consultations are currently taking place: we need only look at the No. 10 website to see that. Those with strong opinions and ample time should be free to add to debates, but there is one small drawback. Consultation does not involve any debate at all. The public are invited to pour in opinion, which can then be conveniently polarised, twisted or ignored. The scale of the consultation industry is reminiscent of the old maxim Divide and rule. There are now so many official consultations that it is impossible to keep abreast of any of them. Moreover, the Government have opened up consultation far too widely.
	Consultation involves small complications, but big complications are much more serious. Consultations are voluntary, they are not binding, and no one has a say. There has to be a proper code of conduct. Imagine what Moses would have said if God had handed him a code of conduct instead of the ten commandments. Thou shalt not covet thy neighbour's ass has a better ring to it than Perhaps we should leave the neighbour's donkey alone.
	Private Members' Bills such as this are designed to establish effective procedures by which all councils must abide. It is no longer good enough to tell people what the council feels that it should be telling them. It must no longer be acceptable to insert a tiny notice in the form of a classified advertisement in the local paper. Under my Bill, the nature of proposals must be crystal clear, and they must be advertised so that people can see notices, understand them andmore importantrespond to them. Local authorities will have to go out of their way to let people know what they are doing, and the Bill will specify precisely how far out of their way they will have to go.
	Critics may say that this will cost money. It is necessary merely to amend, not to reinvent the wheel, and paying for the maximum sensible standards will surely save more in the long term. If planners and politicians listen to local opinion first and take action on the basis of what people really want, town halls will get on a great deal better. We can all cite cases from all over the country in which that has not happened. Perhaps the most obvious local example is my own county council, which ill-fatedly put up hundreds of road signs without consulting. The public were upset, and all the signs came down again. That is not good enough.
	The tragedy is that local authorities are not doing anything wrong, but are obeying the law. The Bill spells out what is necessary. It makes sense, and I commend it to the House.
	 Question put and agreed to.
	Bill ordered to be brought in by Mr. Ian Liddell-Grainger, Kelvin Hopkins, Mr. Mark Francois, Rob Marris, Mr. Ben Wallace, Mr. Lindsay Hoyle, Mr. Henry Bellingham and Mr. David Clelland.

Planning (consultation)

Mr. Ian Liddell-Grainger accordingly presented a Bill to require local planning authorities to consult or notify persons living outside their area about specified matters; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 19 October, and to be printed [Bill 90].

Opposition Day
	  
	[8th allotted day]

Occupational Pensions

Mr. Speaker: We now come to the eighth allotted Opposition day, and the debate is on occupational pensions. I inform the House that I have selected the amendment in the name of the Prime Minister.

George Osborne: I beg to move,
	That this House has no confidence in the Chancellor of the Exchequer's handling of occupational pensions.
	That simple motion reflects the following four simple charges. First, that in his first Budget this Chancellor introduced a stealth tax on pension funds that his own civil servants warned him would blow a big hole in those funds' finances. Secondly, that in the decade since that Budget that is precisely what has happened; we have seen what the Labour pensions Minister at the time describes as the large-scale desolation of our pension system. Thirdly, that that desolation has left millions with a shortfall in their retirement funds and 125,000 people with little or no pension at all. Finally, that this Chancellor has from the start acted with stealth, blocked all attempts to get at the truth and now blames everyone but himself for the destruction that he has brought to Britain's pensions. In short, the abolition of dividend tax credits was, in the words of the Prime Minister's own economic adviser at the time,
	a mad thing to do
	and quite crackers.

Several hon. Members: rose

George Osborne: On that note, I shall give way to the hon. Member for Livingston (Mr. Devine).

Jim Devine: If the Conservative party were in power, would it reintroduce the dividend tax credit?

George Osborne: It would do the hon. Gentleman's career a great deal of good if he did not read out the prepared questions of the Economic Secretary to the Treasury. I will come on to what we think we can do to help pensions, and there will be an opportunity tomorrow for the hon. Gentleman to vote for changes that would help those 125,000 people. That raises a question that he will have to answer when we have that debate tomorrow.

Several hon. Members: rose

George Osborne: I shall give way to the hon. Member for Stourbridge (Lynda Waltho), and perhaps she will tell us whether she will vote for the amendments that would help those 125,000 people.

Lynda Waltho: I would like the hon. Gentleman to tell me whether he agrees with his colleague, the hon. Member for Eastbourne (Mr. Waterson), who today on The Daily Politics show led people to believe that the Tory party would look at bringing back the dividend tax credit. What would the hon. Gentleman's party do?

George Osborne: Now that the Secretary of State for Environment, Food and Rural Affairs has withdrawn from the Labour leadership race, Labour Members are queuing up to ask the Chancellor's questions in our debates. I will come on to talk about what the hon. Lady and I can do to help those pensioners. Indeed, there is a vote tomorrow in which she can take part.
	I was talking about the Chancellor of the Exchequer, and may I say how pleased we are that Macavity has finally been dragged kicking and screaming out of hiding on the very day when homeowners and pensioners are coming to terms with the latest rise in inflation? Not long ago, the Chancellor was telling the Treasury Committee that he expected
	inflation to come down significantly over the course of the next few months.
	Today he received a letter from the Governor of the Bank of England explaining why it is rising. Well, the Chancellor never was much of a forecaster.
	Whether in terms of rising inflation, the record tax burden, the billions of pounds that we see being wasted on projects such as the NHS computer system, or that con-trick Budgetor, indeed, the pensions raidthis Chancellor's boast of economic competence is unravelling before our eyes.  [Interruption.] The first, and worst, of all his mistakes was that raid on pensions. When he stands up to respond, let us find out if he can look Britain's pension holders in the eye and say sorry. One Browne has already done that this week.  [Interruption.] Let us see if another Brown has the courage to do so again today.
	The road to the Chancellor's first and worst stealth tax began, strangely enough, in a hotel room, because the pension tax plans were dreamt up [ Interruption. ]

Mr. Speaker: Order. It is far too noisy in the Chamber. The hon. Gentleman is entitled to be heard [ Interruption. ] I do not want to have to tell you a second time, Mr. Balls.

George Osborne: The plans for the pension tax raid were, strangely enough, dreamt up in a hotel room. They were dreamt up by the small cabal of the then shadow Chancellor, which included the Economic Secretary, in the penthouse suite of the Grosvenor House hotel, which was taken by the hon. Member for Coventry, North-West (Mr. Robinson), who I see has also brought a copy of his book into the Chamber. He is the Chancellor's former paymaster in more ways than one. It is all there in the hon. Gentleman's memoirs, which are titled The Unconventional Minister. I guess that unconventional meant that he was bankrolling the Chancellor, and providing Tuscan villas to the Prime Minister and mortgages to Peter Mandelson.
	It is clear from the memoirs that right from the start the tax on pensions was never about encouraging retained profits or increased investment, or any of the other excuses that the Chancellor still peddles. The paymaster says in his book:
	We needed the money. It had to come from somewhere. We set a target of increasing revenues by 5 billion per annum...There were not many options. If the target was going to be met, then tax credits had to go.
	Of course, they were still in opposition while the plans were being drawn up

David Taylor: rose

George Osborne: Perhaps the hon. Gentleman can tell us whether he knew of the plans before he campaigned in that election.

David Taylor: It is clear from what the hon. Gentleman has said so far that basic GCSE economics was not on the curriculum of the minor public school that he attended. Would he acknowledge the force of the argument by many independent economic observers that the pension fund deficits and the closures of schemes have much more to do with the extended and unjustified holidays from employer contributions and extended life spans than with any of the actions to which he refers?

George Osborne: Let me tell the hon. Gentleman what the right hon. Member for Birkenhead (Mr. Field) said recently. He was the Minister for Pensions at the time and he said:
	When Labour gained power in 1997, Britain's occupational pensions were the envy of the world...Ten years on the scene is one of large-scale desolation.

Frank Field: Would the shadow Chancellor like to quote what I said about the two body blows to pension schemes? The first was under the Conservative Government when they taxed surpluses on pension funds.

George Osborne: We will wait for the right hon. Gentleman's speech, when he can tell us about the second blow to pensions. I did read his article in which he talked about the changes that Lord Lawson made and the tax on the pension surpluses, but as the right hon. Gentleman says, by 1997, the pension system was in extremely good shape. He has said that on several occasions. While of course he makes the point about Lord Lawson's tax, the fact was that when this Government came in, the occupational pension system was strong and the right hon. Gentleman, as the Minister for Pensions at the time, did not knowas the electorate did not knowthat the Government were planning to abolish dividend tax credit.

Frank Field: There are two points. One is whether the assets looked strong. The second is the crucial factor of the running down of pension surpluses. If the hon. Gentleman were more honest[Hon. Members: Oh!] I am sorry, if he were more accurate, he would admit that his party fatally weakened pensions. That makes the charge that he is trying to make more serious, not less serious.

George Osborne: The right hon. Gentleman has said on several occasions that when Labour came to office, we had one of the strongest pension provisions in Europe. Now we have probably some of the weakest. That was the situation in 1997. The right hon. Member for Birkenhead did not know about the dividend tax changes because, presumably, they were kept secret from him. They have done enormous damage, as I think he understands[ Interruption.] It is no good the Chancellor joining in the cheering, as he has not spoken to the right hon. Gentleman for 10 years.

Several hon. Members: rose

Mr. Speaker: Order. The hon. Gentleman has indicated that he is not giving way. Also, I appeal to hon. Members not to shout across the Chamber. If they do, they run the risk of being expelled from the Chamber. That is what will happen.

George Osborne: The Government kept their stealth plans secretfrom the public, from the rest of the Labour party, and even from the then Leader of the Opposition. Clearly, the Chancellor was starting as he meant to continue. According to the memoirs, the tax plans were locked in a safe in that hotel room throughout the election, while the rest of the Labour party went around the country campaigning on a promise not to increase taxes at all.

John McFall: Will the hon. Gentleman give way?

Judy Mallaber: Will the hon. Gentleman give way?

George Osborne: I give way to the Chairman of the Treasury Committee, and then I shall make some progress.

John McFall: Does the hon. Gentleman remember that Norman Lamont, who was Chancellor in 1993, said that dividend tax credits had to go because they distorted the market? On five separate occasions over their 18 years in office, the Conservative Government reduced the level of dividend tax credit. Is he contradicting the policies adopted by that Conservative Government?

George Osborne: I can tell the right hon. Gentleman that Norman LamontLord Lamontdid not abolish dividend tax credits. That is why they were there for the present Chancellor to abolish them in 1997. When Treasury civil servants proposed to my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) that he should abolish them, he absolutely rejected the idea, because he knew the damage that would be done to pensions.

Nick Palmer: Will the hon. Gentleman give way?

George Osborne: No. I shall get on with my speech and take some interventions later.
	The Chancellor and the man who is now Economic Secretary dropped their tax bombshell on to the laps of Treasury civil servants the day after the 1997 general election. Their advice was clear, and we know the truth thanks to the two-year campaign undertaken by  The Times. I congratulate that newspaper on its efforts, which it maintained despite the costs incurred.
	The Chancellor should be condemned for his efforts to stop that campaign. Indeed, I hope that he will be able to confirm something that a member of the Government told me privately yesterday[ Interruption.] I can tell the House that someone in my job gets quite a lot of advice about the Chancellor from members of the Government.
	Yesterday, I was told that the documents were finally released only because the Permanent Secretary to the Treasury refused to go on funding the legal costs involved in blocking their release.[ Hon. Members: Oh!] As I said, I hear many stories from Labour Members about the Chancellor. When the right hon. Gentleman responds to the debate, perhaps he will confirm the truth of that story.
	In the end, the Chancellor was forced to release the documents. However, he did so very late on the Friday afternoon after the House had begun its Easter recess. The Government have made a habit of burying bad news, but that was one of their shabbiest attempts, and I am pleased to say that it failed spectacularly.
	We can now see the Treasury advice, and understand why the Chancellor was so desperate to conceal it from the public. In its submissions to the Chancellor in May and June 1997, the Inland Revenue warned that
	abolishing tax credits would make a big hole in pension scheme finances
	and that
	the change would lead to a reduction in pension benefits for the lower paid
	the same people whom he had just hit with his Budget. The Revenue also told the Chancellor that
	any loss of pension could be difficult for someone on a small income to cope with,
	and it advised him that
	everyone in a money purchase scheme is a potential loser.
	Officials at the Inland Revenue ended up by saying that they did not imagine that the Chancellor would want them
	to consult the DSS before Budget Day.
	On that note, may I welcome the Secretary of State for Work and Pensions, whose private views about the Chancellor are now so public?
	Of course, when Labour Members listened to the Chancellor make his 1997 Budget speech at the Dispatch Box, none of them could have guessed that when he promised to undertake a long-needed reform of company taxation to encourage investment, he meant that he was about to clobber their pensions with a stealth tax worth 5 billion a year.
	That first Budget speech established the reputation for stealth and dishonesty that all the right hon. Gentleman's subsequent 10 Budget speeches have lived up to, and none more so than the con trick that he delivered a month ago.

Gordon Brown: This, Mr. Speaker, is what I said in that Budget:
	The second is a structural reform that will also encourage investment.
	The present system of tax credits encourages companies to pay out dividends rather than reinvest their profits. This cannot be the best way of encouraging investment for the long term, as was acknowledged by the previous Government. Many pension funds are in substantial surplus and at present many companies are enjoying pension holidays, so this is the right time to undertake a long-needed reform. ... so with immediate effect, I proposed to abolish tax credits paid to pension funds.
	Now, will the hon. Gentleman withdraw the accusation that the House of Commons was not told in 1997? The House of Commons was told not only what we were doing but why we were doing it and why, incidentally, the previous Government had cut the tax credit five times.

George Osborne: The Chancellor never told the House of Commons that he was hitting people with a 5 billion tax raid on the pensions. Not once did he say that.
	Of course, my right hon. Friend the Member for Richmond, Yorks (Mr. Hague), the then Leader of the Opposition, did say that abolishing dividend tax credits would mean that
	pensions will be smaller and pensioners will be worse off.[ Official Report, 2 July 1997; Vol. 297, c. 306-321.]
	That is of course exactly what has happened. The figures speak for themselves; 60,000 occupational pension schemes have been wound up or, as the right hon. Member for Birkenhead said in the article:
	five sixths of the final salary schemes that have closed have done so since 2000; in other words, they have closed on our watch.
	Only a third of the remaining final salary schemes are open to new members, and 125,000 people have lost all or most of their pension altogether. I give way to anyone who will vote for that amendment tomorrow.

Judy Mallaber: Did Lord Lamont's special adviser, the right hon. Member for Witney (Mr. Cameron), agree with Lord Lamont when he cut dividend tax credit in 1993 that it distorted the commercial decisions of British companies? Did his special adviser accept and agree with that, or not?

George Osborne: May I give some advice to the hon. Lady? Reading out the planted questions of the Labour Whips Office will not give her that preferment that she has been seeking under the current Prime Minister or indeed under the next one.

Andrew Robathan: When my hon. Friend referred to the 125,000 people who have lost their occupational pensions, is he aware of the extraordinary and disgraceful rumour that, when confronted with the victims of the pension raid, the Chancellor said, These are not our people. Will my hon. Friend comment on that extraordinary remark?

George Osborne: It would not surprise me, because those people work hard and save hard, and they want to be independent of the state, so they are not really the Chancellor's sort of people at all.

Henry Bellingham: Will my hon. Friend give way?

George Osborne: I will give way. I know that my hon. Friend takes a particular interest in this subject.

Henry Bellingham: I am grateful to my hon. Friend the shadow Chancellor for giving way. Is he aware that I represent a large number of former Albert Fisher employees, who have lost the vast majority of their occupational pensions? The compensation currently on offer under the financial assistance scheme is inadequate. Does my hon. Friend understand their resentment and anger about what is going on?

George Osborne: I absolutely understand their anger. I will come on to talk in some detail about what we can all do tomorrow to help those people.
	The Chancellor denies all the damage that has been done.

Tom Levitt: Will the hon. Gentleman give way?

George Osborne: I will give way to the hon. Gentleman because I know that he has some of these cases in his constituency, and it is a seat that we hope to take at the next election. Perhaps he can tell us how he will be voting.

Tom Levitt: If the hon. Gentleman is referring to the Turner and Newall case, it has absolutely nothing to do with this issue; it is to do with the administration of the American parent company, nothing else. The hon. Gentleman has been speaking for 20 minutes and has not yet mentioned changes in interest rates, changes in the stock market, the pension contribution holidays that were taken or increased life expectancy. Is he seriously implying that none of those issues has had any effect on pensions and that it is all down to dividend tax credits? No one believes that.

George Osborne: Of course the stock market crash and rising life expectancy have had an impact, but I am debating what the Chancellor of the Exchequer is responsible forthe pensions tax.

Russell Brown: Will the hon. Gentleman give way?

George Osborne: Let me make a little progress in my speech. I shall be happy to take lots of interventions because I want the Chancellor to take lots when he speaks, which is not his habit.
	The Chancellor has denied all the damage that has been done. The day after that Budget he said:
	Pensioners...will not lose out over this.
	Ten years on, he is still peddling that ridiculous line. Tell it to the single parent, working part-time, contributing about 100 a month, who has to increase her annual contributions by 850 to make up the damage caused by the Chancellor's decision, or the young professional [ Interruption. ] I know Labour Members do not like to hear about those people. Perhaps they are not Labour people any more. A young professional who started her pension plan four years ago and contributes 400 a month will have to work 21 months longer, or increase her contributions by almost 1,000 a year, thanks to the Chancellor.
	Rather than acknowledging responsibility, all we have heard from the Chancellor and his cronies is an increasingly desperate string of excuses. They were trotted out by the Economic Secretary on the Today programme a fortnight ago. It was a vintage performance. I know that the Chancellor is thinking about who might take his job when he moves next door, as he hopes. The Leader of the House of Commons has his hopes, as does the Secretary of State for Trade and Industry, but I think I speak on behalf of the whole Conservative party when I ask: please may we have the Economic Secretary? We think he is a real vote winner.
	In the Today programme interviewthe hon. Gentleman's first big test as a Ministerhe made a number of extraordinary claims. The first was that the pension funds had been long-term gainers from the new pensions tax.

Edward Balls: indicated assent.

George Osborne: The hon. Gentleman nods to repeat that claim. Indeed, the Chancellor repeated the claim a week later. Taking 100 billion from pension funds and telling them they were gainers has to take the prize for the most unbelievable political statement of the year. Richard Lambert does not believe it; the Economic Secretary should listen to him because he gave the hon. Gentleman his first job. Richard Lambert said that the tax raid made
	a significant contribution to the weakening of the country's occupational pensions platform.
	The hon. Gentleman should listen to the Prime Minister's former pension adviser. She said:
	The Chancellor will go down in history as the one who destroyed our pensions system.
	The president of the National Association of Pension Funds said:
	This was the biggest attack on pensions in living memory. Even Robert Maxwell only took 450 million.
	What is it with Labour MPs and pensions?

Graham Stuart: Is my hon. Friend aware that the Institute of Actuaries said that 150 billion may yet be a conservative estimate of the cost to the funds? Will he press the Chancellor to tell us today how much the tax has cost pension funds? Have the Government made estimates and what are they?

George Osborne: I agree with my hon. Friend. When the Chancellor speaks, he would do well to tell us what the Treasury's estimate is of the damage done to British pensions by the money taken out of pension funds, but perhaps we shall have to wait a couple of years for the next freedom of information request.

Adrian Bailey: Will the hon. Gentleman give way?

George Osborne: I want to carry on talking about the comments made by the Economic Secretary on the radio. He said, Don't blame us. It was all the idea of the CBI. They were demanding that we abolish dividend tax credit.

Edward Balls: indicated dissent.

George Osborne: It is no good the hon. Gentleman shaking his headthat is what he said. How did the CBI respond to his claim? The then director general, Adair Turner, went on the radio to say that it was completely untrue and that
	at no time whatsoever did the CBI support the policy...when the change was introduced...I wrote to the Chancellor expressing our disagreement.
	If the hon. Gentleman disagrees with that comment, perhaps he would like to intervene. [Hon. Members: Come on.] It is the hon. Gentleman's big moment in front of the Chancellorhe might get the job he is looking for.
	Of course, it is not just the Economic Secretary who has made that claim. The Chancellor himself made it at the CBI conference in 2004. In answer to a question from the audience, he said that the case for abolishing dividend tax credits
	was made originally by the CBI
	a claim that we now know from Lord Turner is completely untrue. Since the Chancellor has discovered the art of the intervention, perhaps he will intervene now to disagree with me. No, he does not want to.
	The third claim of the Chancellor is that the tax change was done to encourage long-term investment in the economy. He may well say that in his speech today, but the fact is that documents released by the Treasury show that the Chancellor had known all along that that was not the case. The advice he received from the Inland Revenue on 22 May that year clearly says that
	the view of the economists is that overall the reform will be broadly neutral in terms of the amount of investment.
	Today we learn for the first time that one of the Chancellor's own Ministers was warning at the time of the damage that would be done by his tax.

Adrian Bailey: rose

George Osborne: I shall give way, as I wonder what the hon. Gentleman believes has been the impact on investment.

Adrian Bailey: Will the hon. Gentleman explain why, if the abolition of the tax credit was so devastating to pension funds, those funds' assets rose by more than 150 billion in the three years after that?

George Osborne: I have just read quotes from the CBI and the National Association of Pension Funds that show that there has been a devastating blow to pension funds and that more than 100 billion has been taken out of pensions. That is the case and people's retirements have been raided. That was, indeed, predicted.

Several hon. Members: rose

George Osborne: I want to make some progress.
	That was predicted by David Simon, the chairman of BP, who wrote that abolishing dividend tax credits would
	reduce funds available for reinvestment
	and
	significantly jaundice... the attitudes of investors in UK projects.
	If officials were saying that there would be no overall effect on investment and Ministers were warning of a negative impact, why were the public told that investment would go up? Why?  [Interruption.] The Economic Secretary is peddling another claim that is simply not the case. Business investment as a proportion of GDP has been at a record low.
	Now, Mr. Speaker, we hear a lot of excuses from the Chancellor about his pensions tax. What we never hear is any expression of sympathy for the millions who have had their retirement funds raided.  [Interruption.] Off go the boot boys. As I say, we never hear any expression of sympathy. In Budget after Budget, we hear nothing from the Chancellor about what we can do to restore confidence in pensions and nothing about how to help those who do the right thing.
	Unlike the Chancellor, we are listening to the pensions industry and we are working with British businesses on the tax and regulatory changes that are needed. However, there is something that we can do right now for the 125,000 people who have lost some or all of their pensions because their company went bust. I imagine that every MP has met some of those people in their constituency surgeries: their stories are heartbreaking, their dreams shattered with a lifetime of hard work and saving lostand all through no fault of their own.
	We know that some of the fault lies with the Government. The parliamentary ombudsman made that clear in talking about maladministration. The Labour chair of the Public Administration Committee agrees with that verdict. He says that the Government should stop quibbling over this and act to find an acceptable solution for the thousands affected. That is the opinion of the chair of the Public Administration Committee and I agree with him. I believe that all of us, Government and Opposition alike, have a duty to help those people.
	So far, frankly, the help has been inadequate. The Government's financial assistance scheme has cost 9 million to administer, but has paid out just 3 million to date. Even by this Chancellor's standards, that is pretty poor value for money. We need a new approach, an approach that meets our moral obligations to those victims [Interruption.] Yes, the moral obligation that we all owe to those people. It is an approach that we need to adopt without placing a long-term additional burden on the public exchequer.
	My hon. Friend the shadow pensions Minister has, along with Government Members, tabled amendments to the Pensions Bill, which reports to the House tomorrow. The effect of those amendments would be to create a lifeboat fund for the 125,000 people under the management of the Pension Protection Fund. The lifeboat fund would start making payments immediately to top up pensions to PPF levels90 per cent. of the total expected pension package. It would include the 6,000 people whose employers remain solvent, but whose pension scheme has gone bust. I agree with the hon. Member for Cardiff, North (Julie Morgan), who may be in the Chamber, although I cannot see her, that it is unjust to leave those unfortunate people facing financial ruin.
	How much would all this cost? According to the e-mail that the Secretary of State for Work and Pensions sent to the parliamentary Labour party and which we have a copy of, the net present value cost is 600 million. The annual cash requirement begins at around 30 million, rises to a peak of perhaps three times that in 20 years' time and then falls to zero. To get the money flowing now, the Treasury should make a loan to the lifeboat fund. That is the precedent of what the Government did with Robert Maxwell. The Treasury should then recover the money, on behalf of the fund, from the hundreds of millions of pounds of unclaimed pension assets that the industry itself confirms exist.
	The amendments tomorrow command cross-party support and we will discover today whether they have the support of the Chancellor of the Exchequer. Perhaps he can tell us now. It is time for him to start making amends for the damage that he has done. The Chancellor has made many mistakes in his long time at the Treasurymistakes that are now coming home to roost. But surely the Chancellor's biggest mistake was his first: his 100 billion raid on the nation's pensions. Why did he do it? As one of my hon. Friends says, we are told that the millions who work hard and save hard for their pension are not his kind of people. In his eyes, their greatest sin is that they want to be independent of the state. In our eyes, that is one of their greatest virtues. For 10 years, the Chancellor has twisted and turned and done everything possible to duck his responsibility and conceal the truth, but the great British pension theft was his crime. The Chancellor has raided the retirement hopes of millions and wrought desolation on the British pension system. We have no confidence in his management of pensions. We have no confidence that he has the answers for the future. Now it is time for him to stand up, face the music, and tell us all that he is sorry.

Gordon Brown: I beg to move, to leave out from 'House' to the end of the Question, and to add instead thereof:
	'notes and welcomes the acts of this Chancellor and Government to tackle the legacy of pensions mis-selling, support occupational pensions through a Pension Protection Fund set up for the first time and anew Pensions Regulator, further support 125,000 people through the Financial Assistance Scheme whose occupational pensions were affected by employer insolvency, set out the long-term framework for pensions through the new Pensions Bill, including re-linking the uprating of the basic State Pension to average earnings, introduce a new scheme of low cost personal accounts and stakeholder pensions of which over three million have been created, remove the dividend tax credit, make reductions in corporation tax which have contributed to the 50 per cent. rise in business investment and helped the UK economy to grow in each of the last 39 quarters and introduce the winter fuel allowance, free television licences and the Pension Credit to provide an additional framework of support for today's pensioners.'.
	I relish this debate. I will answer every question put to me. But as this is a debate about occupational pensions, why did the shadow Chancellor not mention first of all that we are the first Government in history to ensure protection for pensioners when their company goes bust? That was not done by the Conservatives; it was done by Labournot sympathy, but action. Why did not the shadow Chancellor start by also recognising that, retrospectively, we are helping those employees whose companies have gone bust? That is the means by which we are helping the 125,000 who suffered not because of a dividend tax credit, but because their company went bust. We are alsothe shadow Chancellor does not recognise thisthe first Government to address seriously the mis-selling of pensions that we inherited from the Conservatives. When we took office in 1997, 2 per cent. of the mis-selling had been dealt with. Within two years, the figure was 98 per cent. That was not done by the Conservatives; it was action by a Labour Government.

Graham Stuart: rose

Gordon Brown: Will the shadow Chancellor not also acknowledge that we are the first Government to create an auto-enrolment pension scheme that will mean that all [ Interruption. ] I will give way to all the hon. Members who want to intervene once I have set out my argument and shown that the shadow Chancellor has made a series of mistakes.
	We are the first Government to create an auto-enrolment pension scheme that will mean that all taxpayers have a pension from work. That was never done by the Conservatives; it has been implemented by Labour. We are the first Government to make it a priority to tackle pensioner poverty. That is why we have introduced the pension credit, the winter allowance, and the free TV licence for the over-75sopposed by the Conservative party in the 2001 election. We will be the first Government in 30 years to restore the link between pensions and earnings when we introduce our long-term changes as a result of the Pensions Bill.
	Despite what the shadow Chancellor has been saying throughout the debate, what actually happened to the pension assets from 1996 to the present day is that the assets of pension funds in 1996 were

Graham Stuart: Will the Chancellor give way?

Gordon Brown: I will give way in a minute, but I think that the shadow Chancellor should have an education before I do so.
	In 1996, the assets of pension funds were 549 billion. By 1999, they were 820 billion. By 2006, even after the stock market crash, the assets of pension funds were more than a trillion pounds. In other words, the assets of pension funds have doubled during the period of this Labour Government.

John Redwood: rose

Gordon Brown: I will let people in when I have finished putting these factual points.
	Let me also tell the shadow Chancellor that in 1996, the total income of pension funds was 34.4 billion. By 1999, it was 39.6 billion. By 2006, the figure was twice as much as it was in 1996: 71.3 billion.

Several hon. Members: rose

Gordon Brown: I will give way in a minute.
	If anyone expects the Conservative party to be more helpful to pensioners than we have been, let me read what the shadow Chancellor said at a meeting organised by  The Independent at the Conservative party conference:
	There are lots of Conservatives who come up to me and say we've really got to put more money into the pensions ... the test of whether we are ready for government is whether we can resist those additional
	calls for public expenditure.

Several hon. Members: rose

Gordon Brown: I will give way in one second.
	The strength of our argument is not just the points that I have made. It is based on the rock of the economy and making the right long-term decisions for the country. It is on the rock of the economy that occupational pensions and any other services in our country depend. I tell the House that I do not apologise for the three long-term decisions that I took in 1997 in the interest of stability and growth in this country: first, to make the Bank of England independent, which was opposed by the Conservatives; secondly, to build a fiscal framework for this country that allowed us to double public investment, which was opposed by the Conservatives; and, thirdly, to remove the bias against long-term investment in our economy. That bias was recognised by the previous Chancellor, and, to achieve that, we cut corporation tax by 2p in the pound.
	If the shadow Chancellor wants to cut corporation tax by 2p in the pound, as we did in 1997, why cannot he tell us how he could fund that other than by withdrawing the dividend tax credit? Why does he continue to tell us that he wants more investment in the economy while refusing to back the measures that increased investment in the economy? Why does he tell us that he opposes in principle the withdrawal of the dividend tax credit when his own Government said that it was a bias against investment in 1992 and when he cannot tell us that he would restore it if ever he came to power? Why does he not admit that the Leader of the Opposition was the adviser to Lord Lamont on the fifth occasion on which the dividend tax credit was cut?

Adam Afriyie: Will the right hon. Gentleman give way?

Hon. Members: No!

Gordon Brown: I am just about to give way.
	The shadow Chancellor says that he wants long-term answers to the problems of the economy, but every position that he takesrefusing to replace the dividend tax credit with something else and refusing to tell us how he would fund corporation tax cutsshows that he has learned nothing from two years as shadow Chancellor. His approach is short-termist, opportunistic and insubstantial. We take the long-term decisions for the economy; he has a short-termist approach.
	When the hon. Gentleman became shadow Chancellor, he said that far too often the Conservative party had been perceived as opportunist. He said:
	we have sacrificed long term credibility for the prospect of winning the support of an aggrieved section of the population or ... winning a vote
	in Parliament. He continued:
	Short termism has hampered attempts to develop a long term ... policy.
	That is exactly where the Conservative party is today.

Graham Stuart: I am extremely grateful to the Chancellor for giving way. As ever, he prefers to talk about the policies of the Opposition, rather than the results of his own policies. Will he give an answer today, and say what estimate he and the Treasury make of the impact on pension funds of the pension tax raid that he authorised in his first Budget in 1997? Give us a straight answer!

Gordon Brown: The hon. Gentleman clearly has not read the papers in any depth. What the Treasury said was that actuaries would assume that there would be a 7 to 20 per cent. fall in the share price immediately after the announcement, but in fact the share price rose. It rose by 0.5 per cent., then it rose by 12 per cent. over the quarter, and then it rose by 27 per cent. over the year. That is why the assets of pension funds, which is the big issue, rose from 549 billion in 1996 to 820 billion by 1999.

Several hon. Members: rose

Gordon Brown: I will deal with other interventions later, but perhaps the hon. Member for Beverley and Holderness (Mr. Stuart) will tell me something: he is a member of the Cornerstone group

Graham Stuart: indicated dissent.

Gordon Brown: Is he not?  [Interruption.] Oh, he is. Is he apologising? The Cornerstone group proposes 40 billion of tax cuts, but not one of them is to restore the dividend tax credit.

John Redwood: I am grateful to the Chancellor for giving way. Does he agree that if we took a fifth of his income away, he would be worse off? Why can he not accept that when he took a fifth of the dividend income away, pension funds were bound to be worse off?

Gordon Brown: I used at least to have some respect for the right hon. Gentleman's grasp of basic economics, but what actually happened was this: in 1993, the current Leader of the Opposition advised Lord Lamont to remove part of the dividend tax credit, but the Conservatives did not replace it with a cut in corporation tax. There was no cut in corporation tax. When we made our change, we cut corporation tax by 2p. What happens when corporation tax is cut by 2p? First of all, companies are more profitable. Secondly, they can pay more in employer contributions to pension funds. Their dividends rise and they are able to pay more dividends to pension funds. I have to tell the right hon. Member for Wokingham (Mr. Redwood) that all his assumptions are wrong, because what actually happened after the corporation tax changes was that companies paid more in employer contributions, dividends rose, payments to pension funds rose from 34 billion to 39 billion, and the assets rose from 549 billion to 820 billion.
	The Leader of the Opposition puts forward all his proposals for tax cuts, but is it his priority to restore the dividend tax credit or not? It does not seem to be his priority, it is not the shadow Chancellor's priority, and it does not seem to be the priority of anybody on the Conservative Benches.

Kenneth Clarke: rose

Hon. Members: Oh!

Kenneth Clarke: The Chancellor is carefully eliding and shuffling a few dates and events, so may I help him with his recollections? When he was shadowing me as Chancellor, neither of us realised that both of us were looking at the same proposition of a reduction on the tax dividend credit on pensions. In the Treasury, I discussed that proposition with my right hon. Friend the Member for Charnwood (Mr. Dorrell), who was then the Chief Secretary to the Treasury, and in the Grosvenor House hotel, the Chancellor discussed it with the current Economic Secretary to the Treasury and the hon. Member for Coventry, North-West (Mr. Robinson). We rejected the idea because we were satisfied that it would do damage to occupational pension funds. The Chancellor decided that it would not damage them, and he is still using the preposterous argument that it was responsible for the stock market boom that followed, but I seem to recall that the boom had something to do with the dot.com bubble in the United States. Is he still saying that the Grosvenor House mob came to the right conclusion, and that we came to the wrong one?

Gordon Brown: First of all, the ex-Chancellor supported, during the period in which his party was in government, the reduction of the dividend tax credit from 33p to 30p, then from 30p to 27p, then from 27p to 25p, and then from 25p to 20p. It was virtually halved in the period in which the Conservatives were in government, and it was halved on the advice of the Leader of the Opposition; he advised Lord Lamont to go ahead with the move. As far as the ex-Chancellor is concerned, the problem is that in 1997 and 1998, he thought that there would be a recession in Britain, so it was not the right time to deprive companies of those resources, but I took the view that the economy would continue to grow. I was proven right: instead of a 7 or 20 per cent. cut in share prices, shares continued to rise, profits continued to rise and investment continued to rise. The ex-Chancellor said:
	I've been forecasting a hard bump and not a soft landing for the British economy since Brown handed the job of setting rates to a committee of bankers...He is going to bust our economy
	without any risk of growth. That is what he said, but he was absolutely wrong.

Stephen Dorrell: rose

Gordon Brown: I will take not only the ex-Chancellor but the person who was the Chief Secretary at the time.

Stephen Dorrell: I am grateful to the Chancellor, but I was actually the Financial Secretary. Can we be clear about one thing? Since the Chancellor came to power in 1997, the number of private sector final salary pension schemes accepting new members has been cut by two thirds. Is that a successful policy, an unsuccessful policy or nothing to do with him?

Gordon Brown: It is absolutely right that there has been a cut in those schemes in every major country in the world, but I have to tell the right hon. Gentleman that I have the figures with me, and the cut in defined benefit schemes between 1995 and 2000 was 2 per cent. Between 1990 and 1995, there was a cut of 5 per cent. under his Government. I remind him that when he spoke in 1993 on the Finance Bill, he supported the withdrawal of the divided tax credit to 20 per cent. He said the Tories were doing it
	in a way that does minimum economic damage, recognising the substantial tax benefits available to pension funds as collective savings vehicles.[ Official Report, Standing Committee A, 15 June 1993; c. 377.]
	He makes my case.

Several hon. Members: rose

Gordon Brown: Who is next?

Pete Wishart: I am grateful to the Chancellor for giving way, but is it not the case [ Interruption. ]

Mr. Speaker: Order. Let the hon. Gentleman speak.

Pete Wishart: Thank you, Mr. Speaker. Is it not the case that the pension fund raid will cost the average Scottish family 3,750 at a time when one in five Scottish pensioners live in poverty? When the Chancellor came to Scotland, he said that he regretted nothing and that he would do it all again. Should he not apologise to the Scottish people, and does he not understand that this is the final nail in Labour's coffin in Scotland?

Gordon Brown: I have just explained to the House that we put 11.5 billion into pensions from 1997 until now in real terms. We have done more to abolish pensioner poverty than was ever done by the Opposition. We introduced a winter fuel allowance and free television licences, which were opposed by the Opposition. We introduced the pension credit, and the only plans that do not add up are those of the Scottish National party, which assumes billions in oil revenues that do not exist, which promised to spend money that it does not have, and none of whose figures add up. The hon. Gentleman should go back to Scotland and explain why his policies and plans are economically illiterate and cannot make a difference to the people of Scotland.

Edward Garnier: rose

Gordon Brown: The Conservatives were complaining that I was not taking enough interventions, but I will give way to the hon. and learned Gentleman.

Edward Garnier: I am very grateful to the Chancellor. In my constituency and throughout Leicestershire, there are thousands of former British United Shoe Machinery pensioners who, instead of living in retirement on their occupational pensions, have a vastly reduced income and just about survive on benefits. Does the Chancellor claim that as one of his great policy successes?

Gordon Brown: First, we have just announcedand we are the first Government ever to do soa financial assistance scheme worth 8 billion to the 125,000 pensioners who are in difficulty. I hope that the hon. and learned Gentleman supports that. My right hon. Friend the Secretary of State for Work and Pensions will be able to say later in the debate that, as part of the 8 billion announcement, we are reviewing the assets of all the fundswe announced that weeks agoto see if more money can be found. Far from the shadow Chancellor announcing anything new today, he is reheating an announcement made by the Pensions Secretary weeks ago. If the hon. and learned Gentleman is worried about the condition of his pensioners in the meantime, perhaps he should now support the pension credit, the winter allowance, free television licences and the minimum pension guarantee, because I have not heard many Conservative party members or Conservative MPs who are anxious to come out and support those things.

Several hon. Members: rose

Gordon Brown: I see that five hon. Members are standing.

Philip Dunne: With reference to the 8 billion that the Chancellor has just mentioned, will he acknowledge to the House that that is payable over 60 years and that its net present value is less than 2 billion?

Gordon Brown: We have just raised the figure from 2 billion to 8 billion. We have made it possible for every one of the 125,000 people who have lost out to benefit. Is the hon. Gentleman repeating what the shadow Chancellor has said, that there will be no extra funds for pensions, or is he demanding that the shadow Chancellor produce extra funds for pensions? Perhaps Opposition Front Benchersin particular, the shadow pensions spokesmanwill clarify in the course of this afternoon whether they are offering new money or whether they are sticking to the shadow Chancellor's pledge that there will be no new money at all.

Greg Clark: Will the Chancellor confirm that his raid has been not only on pension funds, but on Britain's charities? And will he confirm that Britain's charities have lost 1.3 billion to date as a result of that policy?

Gordon Brown: That is not true.  [ Interruption. ] The shadow Chancellor thinks that the matter is so important that he did not even mention it in his speech.  [ Interruption. ] The dividend tax credit was indeed paid to charities, but we gave them compensation for five years afterwards, and at the same time we introduced a major reform of charities. Gift aid was worth 135 million when we came in; it is now worth 750 million. I have not seen the Conservatives supporting what we have done in that area, either.

Peter Lilley: If it was damaging to charities and the Chancellor had to compensate them, why does he not admit that it was damaging to pension funds and issue compensation?

Gordon Brown: The right hon. Gentleman had better be careful in joining this debate. He was the author of plans on pensions that virtually lost his party the 1997 election. I have just explained to him that companies paying into pension funds are paying employers' contributions, which rose by 2 billion between 1996 and 1999. It was wrong that so many companies were taking employer holidays, and it was also wrong that the share of wages paid in pension contributions was only between 1 and 2 per cent. Those companies had unfortunately been encouraged to take those holidays by the taxation regime operated by Lord Lawson, which was why those pension funds were not receiving employer contributions as they should have done. Once we made the change, employer contributions started to rise. They have now risen to 33 billion a year, and I hope that the right hon. Gentleman will acknowledge that employers are now paying a fairer contribution to the pensions of their workers. In my 1997 Budgetthis is why the shadow Chancellor was completely wrong when he tried to suggest that this was not in the 1999 BudgetI said that employers had been taking holidays for too long and that it was time for them to restore contributions.
	Most sensible people who look at what happened will find that because we cut corporation tax, employers were able to pay more contributions, which rose by 2 billion in that period. At the same time, of course, there were higher dividends, so the effect of the dividend tax credit was wiped out. The whole argument put by the shadow Chancellor this afternoon was dependent on a 7 to 20 per cent. fall in the stock exchange, which was the worst scenario drawn up by Treasury officials. We decided that that would not happen and took the view that the economy would not experience that share cut. We were right and share prices rose by 12 per cent. in the quarter and by 27 per cent. It is about time the Opposition, who pride themselves on having some knowledge of economics, understood that because we acted on corporation tax, which they failed to do, we were able to recycle revenues to both pension funds and higher dividends, which meant that the assets and incomes of pension funds rose between 1996 and 1999.

Several hon. Members: rose

Gordon Brown: I am prepared to take contributions from Back Benchers who have not spoken.

Michael Fallon: If the Chancellor really believes that employers have been happy to make increased contributions to these schemes, why have so many been closed to new entrants?

Gordon Brown: As I just said, the bigger fall in defined benefit schemes was between 1990 and 1995, when there was a 5 per cent. fall; there was only a 2 per cent. fall between 1995 and 2000. I have to accept that around the world, particularly in America, defined benefit schemes were running into trouble [ Interruption. ]

Mr. Speaker: Order. Allow the Chancellor to speak.

Gordon Brown: The hon. Member for Sevenoaks (Mr. Fallon), who sits on the Treasury CommitteeI am very grateful to him for praising my economic record a few weeks ago, which would not have gone down well with the shadow Chancelloris a member of the No Turning Back group, which is recommending [ Interruption. ] This is absolutely relevant to the debate. Members of the No Turning Back group want tax cuts. Unfortunately, they have made all these representations for tax cuts, yet not one of them is about restoring the dividend tax creditthat is how strongly they feel about it.

Several hon. Members: rose

Gordon Brown: Now, shall I take a member of the Cornerstone group or the No Turning Back group? It is difficult; I will take the tall one.

Andrew Selous: It has been estimated that council tax payers are paying an extra 175 a year in council tax because local authority pension funds have had so significantly to increase their contributions because of the pension tax raid. What does the Chancellor say about that?  [ Interruption. ]

Mr. Speaker: Order. Before the Chancellor answers, let me say this to Mr. Bryant: it is the last time I will hear you shouting in this Chamber.

Gordon Brown: I do not accept what the hon. Member for South-West Bedfordshire (Andrew Selous) says. He is a member of the Cornerstone group, which wants a flat tax based on a single rate of 22 per cent., a personal allowance of 10,000, an overall tax cut

Andrew Selous: I am not a member of the Cornerstone group.

Gordon Brown: Perhaps the hon. Gentleman will tell us if he wants the dividend tax credit restored.

Graham Stuart: On a point of order, Mr. Speaker. The Chancellor does not seem to worry about getting his facts right.

Gordon Brown: Perhaps the hon. Member for South-West Bedfordshire will tell us if he wants the dividend tax credit restored.

Andrew Selous: I am happy to tell the Chancellor that I shall be voting for our amendment tomorrow to help these 125,000 people, and my hon. Friend the shadow Chancellor will be making further plans public over the coming year.

Gordon Brown: But the shadow Chancellor has said that he is not going to restore the dividend tax credithe is not denying that. The hon. Gentleman cannot talk about what we are doing tomorrow night, when voting on those people who lost their pensions because their employers went bust, which has nothing to do with the dividend tax credit but which is an important issue that we must deal with. He wants to deal with council workers and council tax. Unfortunately his shadow Chancellor will not support him, but says that he is not going to restore the dividend tax credit. The Leader of the Opposition started it in 1992 by cutting the dividend tax credit, and the shadow Chancellor is not going to rescind its abolition. Why are the Conservatives promising tax cuts in every single area, or trying to do so, yet not one of them seems to want to restore the dividend tax credit? Is not that an example of short-termism, opportunism and completely unsubstantial policy? The hon. Member for Tatton (Mr. Osborne) has learned nothing in two years as shadow Chancellor.

Julie Kirkbride: If the Chancellor feels so confident of his argument, why did he try so hard to have his Treasury officials block the advice that he was given at the time? Will he now answer whether the permanent secretary blocked further litigation because of the cost?

Gordon Brown: First, we introduced the Freedom of Information Act 2000. Secondly, I support it. Thirdly, I support the release of the papers. The debate has shown how the Act can give information, which people can dissect and then find Opposition policy completely wanting. Perhaps it is time to release the papers relating to the 1993 decisions. Doubtless, the shadow Chancellor has applied for that to happen.

Several hon. Members: rose

Gordon Brown: I shall take one more intervention.

John Baron: Earlier, the Chancellor mentioned pension credit. Is he proud of the fact that it is so confusing and complicated that the latest estimate suggests that 1.5 million pensioners throughout the country do not claim it, despite its being due to them? Half of them live in poverty. Is that a record of which to be proud? If not, what will he do to put it right?

Gordon Brown: Nearly 3 million pensioners who receive pension credit never received anything from a Conservative Government. If the hon. Gentleman wishes to support pension credit and get it to pensioners in his constituency who do not have it, we will help him to do so. However, it is about time Conservative Members stood up and said that they supported the winter fuel allowance, the free television licences, the pension credit and what we have done on pensionsthe 11.5 billion.
	In 1997, we made three major changes in the economy. The third was to remove the bias against investmentexactly the proposal that underlined the change that Lord Lamont made in 1992, and the five other changes in dividend tax credit that have taken place. The result of our change was not that the share price fellit rose. All the figures that the shadow Chancellor gave today are wrong. Investment in the economy rose as a result of the measure. The shadow Chancellor asked about investment earlier: it rose by 10 per cent. in 1997, 20 per cent. in 1998 and is now 40 billion more than it was in 1997a sign that the economy is working well. Corporate profits also rose as a result of all the changes that we made. We have haduniquely under any Government 39 quarters of economic growth unbroken by recession.
	Pension assets rose from 1996 to 1999they did not fall. Pension income rose, not fell, from 1996 to 1999. Pension dividends rose between 1996 and 1999they did not fall. We made the right decision for the British economythe right decision for investment, the long-term stability and growth of the British economy and British industry. It is clear today that the Opposition have no alternative to our policy. They would not rescind the dividend tax credit. All they talk about is short-term opportunismit is insubstantial. Their policies do not add up and they have been exposed in every part of the debate.

Vincent Cable: My colleagues and I intend to vote in favour of the motion. We opposed the abolition of dividend tax credits 10 years agoI personally spoke against it. We believe that the Government made a mistake and that they should acknowledge it. However, the hon. Member for Tatton (Mr. Osborne) helped neither his case nor his credibility by turning the debate into a Punch and Judy show, for two main reasons.
	First, undoubtedly damage was done to money purchase schemes and final salary schemes. However, most of the serious analysis that has been conducted in the City suggests that, though it was a factor, it was not one of the three leading factors that contributed to the demise of final salary schemes, according to Stephen Yeo of Watson Wyatt, who was one of the leading analysts. Abolition was, therefore, a factor, but there is no point in exaggerating it.
	Secondly, as the debate has already shown, the record of the Conservatives in office was not terribly credible. There were acts of omissionthe failure to take action on pensions mis-sellingand acts of commission, notably taking action against the so-called over-funding of schemes in the mid-1980s, which the right hon. Member for Birkenhead (Mr. Field) highlighted, and nibbling away at, if not outrightly abolishing, the dividend tax credit through a succession of measures.

Graham Stuart: Does the hon. Gentleman accept that, under the last Conservative Government, occupational pensions were transformed in their scope through an almost tenfold increase in their funds? That was an outstanding achievement. Is it really necessary for the hon. Gentleman, only about 10 seconds into his speech, to show that the Liberal Democrats are heading for a coalition with Brown, if they can get away with it, and that they are here to support him? Anyone who votes Liberal is going to get Brown, and get Labour.

Vincent Cable: That last comment was really quite pathetic. I started by saying that we intended to vote in support of the Conservative motion tonight, but I am trying to present my argument in a reasonably balanced waysomething that I do not think that the hon. Gentleman could begin to understand.
	I will make no further reference to the speech by the hon. Member for Tatton. He was not here in 1997, and I think that he has become a bit preoccupied by a cult of secrecy and the exposure of information. I remember the debate at the time; it was very open. All these arguments were put forward, and criticism of the removal of dividend tax credit was made by the Conservatives and by us. There was no great secrecy about it. The arguments were fully debated at the time.
	I took the view thenas I do nowthat the move was a mistake, for several reasons. The first was a political reason, and not the reason that the hon. Gentleman gave. The Government judged that they needed to raise taxes in 1997 because of what they believed was an excessive level of public debt in relation to gross domestic product. Our view was that if they needed to raise taxes in 1997, they should have done so openly. We argued for direct taxation as an open and transparent way of achieving that, but the Chancellor decided to do it in a more roundabout way, and it has come back to haunt him. That was a political mistake. I am not quite sure what the hon. Member for Tatton was arguing should have happened. Was he suggesting that there should have been an increase in taxation, but of a different kind? Or was he arguing that the severe constraints on public spending that were built in by the right hon. and learned Member for Rushcliffe (Mr. Clarke) should have been made even more severe? What was the counter-factual case that he was advocating?

Stephen Hesford: The hon. Gentleman is talking about political mistakes, but the political mistake was not made by my right hon. Friend the Chancellor. The hon. Gentleman has agreed that taxes had to rise, and my right hon. Friend made the decision that we are now debating. The political mistake was the 1p rise in income tax that the hon. Gentleman's party proposed in 1997 and 2001, but has now dropped.

Vincent Cable: Actually, the Government have done what we askedthey did it in a roundabout way, but they got there eventuallyso I am not sure that that was a very telling intervention.
	The first mistake was the political one of not being open and not accepting that taxes had to rise and doing that in a direct and transparent way. The second mistake involved the damage that was undoubtedly done to pension schemes. We can now quantify that damage in retrospect. Estimates have been made, for example, of the impact in a money purchase arrangement on someone who was aged 25 in 1997. That person will probably have lost about 17 per cent. of their pension benefit. However, there were not many people in that category.
	If we take a more relevant group, namely, people who were 55 in 1997 and who are now retiring, their loss is estimated by the actuaries to be about 5 per cent. of their pension benefit. That is a substantial sum, and those people are angry about that. However, it is 5 per cent., not 50 per cent. We must look at this in some sort of context.

Brooks Newmark: That is none the less a lot of money. The Chancellor has failed to answer this question: given that the abolition of the tax credit happened 10 years ago, what estimate have the Lib Dems made of the actual cost in pounds?

Vincent Cable: Estimates have been made by people who are far more authoritative than us. Perhaps I can refer the hon. Gentleman to a careful study carried out by Watson Wyatt of the overall impact of the measures. It took the view that there is currently the equivalent of a deficit of about 540 billion in occupational pension schemes. It arrived at that figure by calculating that that is the sum that would be required to be made up if pensions were self-financing through an insurance arrangement. It also calculated that the damage done by the Chancellor's changes was about 10 per cent. of that total. So we are talking about damage, but it is one factor among several.

Adrian Bailey: The hon. Gentleman is at least trying to put a coherent argument. Does he accept that part of the reason for that act was to rationalise investment decisions to improve the level of investment in companies, which in itself helped pension fund assets? Does he agree that his figures have to be discounted, at least because of the increase in the investment in companiestheir asset valuethat has also been reflected in the asset value of pension funds?

Vincent Cable: That is a good point logically, but it is factually wrong. I noticed that the Chancellor made the same point. Research after the 1997 Budget by City university business school tried to analyse the impact on investmentwhether the abolition of the dividend tax relief did what it was designed to accomplish. It came to the conclusionit had no political axe to grindthat the impact was zero. The claim that it would change investment behaviour was simply wrong as a matter of fact.

Adrian Bailey: I believe that the figure that the hon. Gentleman quoted was for 1997. Was that not a little early to make an accurate assessment? Does he agree that, looking at the stock market, the FTSE has gone up from 4,500 in 1997 to 6,500 now, and that the all-company index has gone up from, I think, 2,800 to 3,500? There has been a significant increase in investment and the asset values of companies.

Vincent Cable: I am touched that Labour Back Benchers have such faith in the stock exchange as a measure of business behaviour. The study was done several years after the 1997 Budget and established my point that despite the Government's expectations, which may have been reasonable, they did not achieve their aim. There was no change in investment behaviour.
	I tried to raise my fourth criticism in an amendment at the time, as did other hon. Members, and the intervention from the hon. Member for South-West Bedfordshire (Andrew Selous) was on this point. One of the unforeseen negative consequences was the impact on public sector schemes, in particular local authority schemes, which accounted for about 10 per cent. of pension fund assets. The effect of the change was to increase the Bill for local authorities by about 300 million. That was a substantial increase in council tax which was regressive and had a significant effect on local authority funding. It was clearly something that had not been thought through.

John Redwood: Does the hon. Gentleman accept that the 540 billion combined deficit figure from the actuaries is predicated on wind-up and transfer into bonds, and we happen to be living through a gilt bubble, where prices are very high because of the pension crisis and regulatory pressure to go into bonds? Is not the more accurate deficit for ongoing pension schemes the FRS 17 deficit? Is not the current cumulative FRS 17 deficit about the same as the actuaries' figure for the losses as a result of the tax switch?

Vincent Cable: The right hon. Gentleman makes a good point. Others take the view that the FRS criterion is very demanding, but he makes the valid point that we are dealing with a set of assumptions and could come up with different numbers. However, the work in the City suggests that damage was done as a result of the measures but that it was not one of the most important factors. As we are going over the historical record, it is helpful to review what those factors were.
	The first factor was the impact of the tax holidays, which has been discussed. The second was changes in the stock market, to which several hon. Members have referred in different ways. The third was demography. In 1997, the life expectancy of a man coming up to the pension age of 65 was another 19 years. It is now 20.5 years. That is an 8 per cent. increase. Consequently, if there were no adjustments to contributions, the pension benefit would fall by 8 per cent., so demography has played an important part. Low interest rates contributed to the problem of annuities, which we have discussed often. One of the other contributory factors was the behaviour of many of the private companies.

Lynne Jones: Does the hon. Gentleman agree that one problem was that the actuarial advice to pension funds did not warn them of longevity increases? Those did not suddenly come about, but happened over a period and should have been catered for several years before the adjustments were made.

Vincent Cable: The hon. Lady is right. There was a substantial time lag, and when the adjustment was made after the profession insisted on the provisions of the minimum funding requirement, that was arguably a particularly demanding factor operating on the funds.

Russell Brown: My hon. Friend the Member for Birmingham, Selly Oak (Lynne Jones) has made an important point. Does the hon. Gentleman also agree that companies that used their pension fund surpluses to make people redundant in the guise of early retirement did no more than compound the problem?

Vincent Cable: I am coming to that. In many instances, private companies behaved appallingly to their employees. Tomorrow we will discuss the way in which compensation can be given to employees who, through bad luck, found themselves in insolvent schemes, but in many other instances solvent schemes were closed in a very cynical and manipulative way.
	A substantial number of my constituents belonged to the pension funds of two American companies, EMC and Parsons, both of which do large amounts of business with the Government. They are flourishing and highly profitable multinationals, whose offices can be seen by those driving out to Heathrow airport. A few years ago they took advantage of the existing arrangements to close their occupational pension funds to new entrants, and effectively to wipe out their obligations to existing pensioners. They did that within the law, but quite cynically. They shipped into the United Kingdom trustees who had been appointed at head office in the United States, and used the maximum scope that they had within the legislation todefraud would be putting it too heavilyreduce the benefits of their employees substantially in a very cynical way, for which they had absolutely no justification in terms of their position. Employers of that sort have contributed to the lack of confidence in occupational pension schemes.

Mark Todd: The hon. Gentleman is producing a thoughtful analysis of the problem, but he has omitted one factor. I think that companies' perception of risk, particularly when deficits were exposed more vividly in accounting terms, altered during the period that we are discussing. Companies also became aware of the relatively low weight that a good-quality pension scheme carried as part of a retention and recruitment package. That was certainly my perception. My company's pension scheme closed to new entrants while I was there, before I became a Member of Parliament in 1997, partly because the company did not consider it a valuable enough tool for retaining and recruiting quality staff.

Vincent Cable: Those are very good points, which add to my basic argument about the complexity of the decline of the occupational pension scheme. Some of it was caused by factors outside Government control, some was due to regulatory change and some was attributable to tax measures, although not necessarily the most important part.
	Much of the debate has been retrospective. It has asked who was to blame, and why this happened 10 years ago. We should spend a bit of time looking forward. The hon. Member for Tatton was right to emphasise the need to do something about the 120,000 people who have been dispossessed as a result of the collapse of their occupational pension schemes. He also mentioned the proposal that we are to debate tomorrow, which the Liberal Democrats will support. It is a practical proposal designed to address the issue of compensation, and we hope that the Government will be sympathetic to it.
	Another issue that is coming down the track and will have to be faced fairly soon is the Equitable Life inquiry by the ombudsman, which is close to completion. It relates to a serious case of mis-selling to highly sophisticated pensioners, which may well have involved a serious regulatory failing. The Government's response to that, and to the ombudsman's report, will be an indication of how seriously they take the issue of confidence in private funds.

Pete Wishart: I am surprised by the hon. Gentleman's curious defence of the Chancellor and his policy. It almost seems likely that the Liberal Democrats will tell us next that Bob Maxwell was quite a reasonable guy. Given the hon. Gentleman's response to the Chancellor's speech, can he tell us how he will advise his colleagues to vote this evening?

Vincent Cable: I do not know whether the hon. Gentleman was having a private chat when I began my speech, but I think I said three times that we would support the Opposition motion. I presume from his intervention that he will be doing the same.
	The other key future development in terms of the basic pension architecture that the Government need to get right is to do with personal accounts. We have supported the principle of creating a new mechanism for saving by the low paid and the principle of auto-enrolment, but we are worried that the new scheme could give rise to large-scale mis-selling, intentionally or otherwise. The reason for that is that the new plan is targeted at low-paid workers who might potentially be in receipt of benefit; I understand that about 50 per cent. of the target audience for the new personal accounts are potential recipients of benefit, and particularly pension credit.
	What will happen? There will be a negative interaction between means-tested benefits and the new pension payments. We will have a situation in which some people will face the equivalent of an 85 per cent. marginal rate of tax on their new pension, and many will face a marginal rate of tax of 50 per cent. Many such people would be strongly advised not to take out such personal accounts. Yet one has a sense that the Government are so committed to this scheme that that advice will not be given and that many people will be lured into a scheme that is clearly not in their interests.
	Underlying all of this is the most fundamental point of all: the reason so many people are on means-tested benefits is that the Governmentparticularly the Chancellorhave chosen to concentrate all their efforts on improving the pension credit scheme rather than the basic state pension.

Brian Jenkins: Will the hon. Gentleman give way?

Vincent Cable: No, I am about to finish. Until there is a decent basic state pension without means-tested benefits there will be no platform on which people on low and middle incomes can make sensible decisions about their own supplementary saving and pensions.

Several hon. Members: rose

Madam Deputy Speaker: Order. I remind Members that Mr. Speaker has imposed a 15-minute time limit on Back-Bench speeches.

John McFall: I am pleased to have been invited to contribute to the debate. Two words are particularly appropriate for it: hullabaloo and hypocrisy. Hullabaloo is appropriate because we are debating a decision that was taken 10 years ago and on which there was complex and competing counsel. The following question must be asked: what will this debate do for good government and good public policy in the future? Instead of opening up the workings of government as a result of freedom of information legislation, might it encourage Ministers to seek only advice that supports the decision that they want to take? If all civil service advice is prepared with an eye to publication, objections to official policies will not be put in writing and will soon be completely suppressed. I believe that I have support on that point from the right hon. and learned Member for Rushcliffe (Mr. Clarke). It is an important point, which has not yet been raised in today's debate.
	Hypocrisy is also a relevant word. If we look at the past record, we find that the previous Conservative Government were making progressive steps towards reducing, if not abolishing, dividend tax credit. I will mention a few of them later. I have also looked at the general press commentary on this issue. John Ralfe is a pension expert and former finance head of Boots. He has said:
	Anyone who thinks we were living in a pensions nirvana before 1997 needs his head examined.
	He also said:
	I am not someone who habitually jumps to Brown's defence, but the idea that everything is his fault is baloney.
	Yes, that idea is absolute baloney.
	Stephen Yeo is a senior consultant at Watson Wyatt. He advises the Conservative party, and he said that
	the cost of pensions has risen due to lower investment returns, the increased cost of security and greater longevity.
	The decision that we are discussing is not among his top three reasons for that rise in cost. The top three reasons are the rise of guaranteed benefits, poor investment returns and greater longevity. For example, today a 65-year-old man is on average expected to live for 20 years, as against 12 years in 1950. As a result there has been a revaluation of pension scheme liabilities, which has contributed to the current situation.

John Redwood: Does the right hon. Gentleman accept that one of the big impacts on investment returns was the dividend tax? If one takes away money that would have been received in income, the assets are worth less and the total return falls.

John McFall: The former Chancellor of the Exchequer, Norman Lamont, and John Moore and others in the Conservative party said that the tax relief was a subsidy. Pension funds do not pay tax and why should they get a subsidy? Steelworkers, miners and others do not get such subsidies. I would have thought that in true Conservative No Turning Back fashion, the right hon. Gentleman would agree with his ideologically firm colleagues on that issue.
	The issue is the relationship between labour and those who have retired. A hundred years ago, there were 14 people working for every one retired. Nowadays, the figure is four to one, and in 2050 it will be two to one. That will lead to big problems. I regret the Opposition's motion today, because I had thought that we had a consensual approach to the issue of pensions. A long-term solution is needed, but the Opposition are going for the short-term fix.

Jim Cunningham: Does my right hon. Friend recall that in 2000 some 250 billion was wiped off the stock market, which had a monumental effect on pensions? Most neutral commentators agree with that assessment.

John McFall: That is certainly one of the issues of concern. The basic issue is that not enough people are saving. Confidence in savings is declining. Indeed, the Treasury Committee has undertaken several inquiries into that issue, to which I shall refer. Two of the big questions are how we can restore confidence and how do we get people on between 10,000 and 25,000 a year to save. It is those people who are not saving, and they constitute some 8 to 10 million people.
	David Robbins, a pension partner at Deloitte, has said:
	Around 90 per cent. of the British population aren't saving enough to ensure a reasonable standard of living when they retire.
	The problem has come to a head because people are living longer. Pensions provision has become so expensive that large numbers of companies have scrapped final salary schemes or closed them to new members amid fears that they could be crushed by the weight of future liabilities. It is incumbent on us as responsible politicians to recognise that issue.
	Stock market volatility is another issue. In 2000, some 250 billion was taken off the value of the stock market. Other hon. Members have mentioned the issue of accounting standards and FRS17, which exposed the potential liabilities of companies. That also reduced confidence. The Secretary of State for Work and Pensions is in his place on the Front Bench and the Treasury Committee has worked with him on the pension issue. I make the point to him that the Cabinet needs to discuss today's accounting environment. Many companies have told me that despite the good efforts of the Financial Reporting Council and others, one good measure is being built on another, so that the system becomes complex and difficult to apply, understand and compare. One company wrote to me this morning with an example in which the same transaction can be correctly accounted for in three different ways with quite different impacts. There is something wrong with such a system. That cannot be laid at the Government's door, but it is a responsibility for them. We urgently need to simplify accounting and make it more transparent, and that should also be part of the debate.

Ian Taylor: The right hon. Gentleman makes some good points about the collateral harm to pensions and the lack of confidence caused by FRS17 and other regulations. The problem today is whether the Chancellor, in making the decision in 1997, realised the size of the impact it would have. The previous Conservative Government considered the move, but rejected it because of the impact it would have. The question today is whether the Chancellor fully understood, even on the Treasury advice he received, the damage it would do to pension schemes.

John McFall: That is a very good question, but Conservative Governments reduced the relief five times, from 35 per cent., so some in the hon. Gentleman's party took a different view.
	I said at the start of my speech that these are complex issues and that people have different opinions about them. I was in the City yesterday, and I asked one of the practitioners there about the decision taken 10 years ago. I was told that the market goes up and down on a daily basis, and that decisions must be judged according to whether they achieve their objectives. No one can see 10 years into the future, as the correspondence published in the  Financial Times over the past few weeks demonstrates.
	In a letter dated 3 April, a chartered financial planner named Peter Cave said that we should put the pensions issue into context. He said:
	Pension funds are rarely invested 100 per cent. in equities, so the tax charge affected only a portion of pension investments: let us suppose a 50:50 split between shares and equities. What is the average dividend in shares? Let us pretend it is...5 per cent. a year.
	That is ambitious in today's environment, but Mr. Cave went on:
	Then, by stopping the (current) 10 per cent. tax refund, Mr. Brown is stopping 10 per cent. of the 5 per cent., namely 0.5 per cent. So the current annual loss to a pension fund, through Mr. Brown's tax change, is 0.5 per cent. on half of the pension fundnamely 0.25 per cent.
	So we are talking about 0.25 per cent. of 1,000 billion, but I can tell the House that, behind closed doors, fund managers can put up their fees just like clicking their fingers and we will know nothing about it. That is how complex the matter is.
	As Chairman of the Treasury Committee, I have been lobbied a lot by industry representatives over the years. They have been concerned about two things: how to restore confidence in the industry so that people on lower incomes get saving again for their pensions, and how we can get people on average salaries of 10,000 to 25,000 to enrol in pension schemessomething that the Government have done a lot to facilitate with their establishment of the national pension saving scheme.
	The Treasury Committee has made its view clear, saying:
	The long-term savings market is worth 1,900 billion-plus, and its efficient working is vital for the prosperity of both savers and the wider economy. It is widely accepted that there is now a damaging lack of consumer confidence in long-term savings.
	The Committee added that savers need to be given clear, succinct information that would reduce the risk of mis-selling.
	The Treasury Committee has also been responsible for establishing a committee comprising industry and consumer group representatives to look forward and plan the pension industry. Richard Lambert, the director of the Confederation of British Industry, was kind enough to be the original chair of the committee. The Treasury Committee's aim was to reach cross-party consensus about the pensions problem, and we made recommendations to the Chancellor about tax and benefits. We said that the present complex tax arrangements needed to be made more coherent to encourage people to save.
	The Pensions Commission set up under Adair Turner agreed, saying that
	many do not trust the financial services industry to sell good-value products.
	It said that the combined result had been a dramatic growth in the numbers in the private sector work force who do not contribute to a non-state pension from just over 8 million in 1996-97 to nearly 12 million in 2004-05. Lord Turner concluded that
	the private pension system, far from growing to fill the gap left by the State...is actually doing less.
	As responsible politicians, we must focus on that, on a consensual basis, as otherwise we will not succeed in making improvements. Lord Turner has performed a good service, especially in respect of the auto-enrolment that has been mentioned already, and of the annual management charge.
	Stakeholder pensions were introduced with an annual management charge of 1.3 per cent. They failed because the industry was not attracted by that, and Turner asked for a management fee of 0.3 per cent. If, during the lifetime of a pension the management fee is 1 per cent. more1.3 per cent. rather than 0.3 per cent., which is a low figure for the industry todaythe end result for a worker is that they have 20 per cent. less in their pension. That is one fifth less. So it is important for us to engage in the setting of annual management fees and ensure that the industry brings its costs down. The Secretary of State for Work and Pensions knows that I have been on his back and I will keep on his and other backs on this matter because until we get low fees and competitive charges we shall be doing a disservice to those who save their money on a weekly basis. That is the issue that we should focus on.
	I mentioned the issue of hypocrisy. The dividend tax credit was cut five times in 18 years by the previous Government. Norman Lamont in his 1993 Budget clearly said that it could have damaging economic effects and it distorted the market. He said:
	It cannot be right to distort the commercial decisions of British companies in this way.[ Official Report, 16 March 1993; Vol. 221, c. 186.]
	So hon. Members who have addressed the House this afternoon agreed with that Budget, but it seems that they have now turned turtle and they do not agree with the policy. This is where the charge of hypocrisy sticks. If it was okay during 18 years of Conservative rule to reduce dividend tax credits, why are Conservative Members bleating nowparticularly those who have a firm ideological viewpoint? The tax credit should be seen as a subsidy, and why should people get a subsidy when other people do not get it?
	The Pensions Commission reserved its real comments for Lord Lawson's Budget and the Finance Act 1988, which forced companies to take contribution holidays. Turner said:
	indeed not only did contributions fall but they were required to fall by deliberate government policy... the Finance Act of 1986...required pension funds to identify whether...they had a surplus of 5 per cent. or more, and to take action to remove the surplus within five years, or else lose some part of their tax exempt status. The deep dip in contributions seen in the period 1988-91...almost certainly reflects the impact of this policy.
	So we had a perverse situation in which companies paid more tax if they invested in their pension fund, but paid less tax if they paid out a dividend. Surely that was a market-distorting policy. Surely it was for the benefit of the long-term economic future of the United Kingdom to get rid of that policy.
	My right hon. Friend the Member for Rotherham (Mr. MacShane) has written a letter to me. He says that he tried to get it published in  The Economist, but it was refused. It regards the comments of John Moore, who was a Conservative Treasury Minister and has endorsed the release of this information. The letter says that John Moore said to my right hon. Friend that
	the first thing an incoming Labour government should do would be to switch the tax relief for private pension funds to more worthwhile ends.
	He was a Treasury Minister, a professional accountant, someone who had experience in this House. So I hope that the charge of hypocrisy sticks perhaps only for today and that we get back to the consensual approach to pensions provision.
	So what should we do? First, we need to get back to a consensual approach. We should accept that dividend tax credits distort the market. We should work together to reverse the historic under-investment and short-termism in the British economy. We should also continue on the path of reducing corporation tax. We should provide incentives for investment. I am particularly keen that the Government should provide incentives for those in low-paid work to save for their retirement. We should also recognise the long-term nature of the problems with pensions and get back together, working on a consensual basis to find a solution to a long-term problem.

Kenneth Clarke: I agree with the right hon. Member for West Dunbartonshire (John McFall) that we are making a great hullabaloo about the events of 10 years ago, but there are perfectly good reasons for doing so and for holding this debate. There is an obvious public interest because the Chancellor has delivered his last Budget and is about to become Prime Minister, so the release of the information excited legitimate public questions about his judgment, his style of taking decisions and the consequences of some of the judgments he has made, which may give some clues to how he might act in future.
	The questions were provoked by the release of information on the decision of the Information Commissioner. The Chancellor says he welcomes the release of such information, althoughlike the right hon. Member for West DunbartonshireI am not sure that I do; I am not sure that we want the form of government in this country to be altered in quite that way. However, it is inevitable that we should have a debate.
	The debate is particularly relevant because the subject is even more important now than it was 10 years ago. We all accept that there is something of a pensions and savings crisis and we are all trying to produce long-term consensus on how to resolve itnot for the first time. I was involved in trying to reach consensus with Barbara Castle when she produced proposals that would have practically wiped out private occupational pensions if she had gone ahead.
	The undoubted fact is that if people carry on contributing as little to their savings and their future retirement as they do at present we shall face great problems. We have to form a judgment about recent events, which will include coming to the conclusion that more should be done to encourage people to make their own savings and their own provision and that more should be done to encourage employers to help by trying to rebuild the system and reverse the decline of the occupational pensions industry. That will require continued tax reliefperhaps additional tax relief when it is affordable and even forms of subsidyso it is important that we consider what the culture should be now. Never again should pensions be regarded as the easy source of revenue that they were in 1997 by the incoming Chancellor. If we can get that point across, the future consensus will be improved.
	I turn to what is still relevant about what happened 10 years ago and will deal briefly with how the announcement was made. The decision was arrived at in great secrecy in opposition and there was no mention of it in the election campaign. It was produced in the Chancellor's first Budget and he read it out in delphic terms; four sentences dismissed the heftiest part of a great increase in the burden of taxation in the 1997 Budget. We had been warned about the windfall taxanother disgraceful taxbut it did not raise enough for the Government, so out of the blue came those remarkable four sentences, ending with:
	The previous Government cut tax credits paid to funds and companies, so with immediate effect I propose to abolish tax credits paid to pension funds and companies.[ Official Report, 2 July 1997; Vol. 297, c. 306.]
	It is clear when we read it, but we all know how the Chancellor delivers such things, particularly the difficult bits of Budget speeches. That was the first time.
	The Chancellor's announcement was misunderstood by less sophisticated members of his party. I do not say that critically; things such as tax credits on pension funds are subjects that usually hold the complete attention of only about 20 Members on either side of the House. The Chancellor's statement produced cheers because some Labour Members thought he was announcing a tax reduction and he thought he had got away with itor so he thought. However, by the next day3 July, when I spoke in the debatethe Chancellor was angry because  The Times had cottoned on to the full implications. History repeats itself. Only a week or two ago, he had a bad press on the morning following the Budget as people began to analyse what he had done.
	In 1997, the Chancellor announced the original stealth tax. He chose it as a source of revenue partially because he believed that 999 in 1,000 people would not understand the statement he was making, so the money would not appear to come from their pockets. However, by the next day, as the hon. Member for Twickenham(Dr. Cable) said, people were beginning to criticise it. I looked up what I said at the time. Even then, we were talking about the fact that we had been considering but rejecting the same proposal and I said that there would be a profound effect on pension funds, pensioners and employers as a result of that dramatic and unexpected change, for which we were unprepared and which had never been mentioned in the general election eight weeks before.

Ian Taylor: Does my right hon. and learned Friend accept that there were some rumours that that might happen? Indeed, the first question put to the Prime Minister at Prime Minister's Question Time in May was from me, and I asked him whether he would compensate pensioners for any of the proposed changes in advance corporation tax.

Kenneth Clarke: There were rumours and I shall refer in a few moments to a book on the subject. There was considerable worry at the time about the matter leaking out before the election. The decision was taken in great secrecy by the group of four people to which the shadow Chancellor has already referredthe three hon. Members and our old friend, Charlie Whelanin the Grosvenor House hotel and with the assistance of Arthur Andersen, the then well known consultancy and accountancy firm. That is how these proposals were devised and put together. It had nothing to do with Treasury advice and I have no doubt that this group discovered, as we had discovered, that the Treasury, as usual in these matters, had a range of opinions among officials, with some in favour and some against. It had all been tied up and decided before the Government came to office.

Philip Dunne: For purposes of clarification, will my right hon. and learned Friend confirm whether that is the same Arthur Andersen whose partners advised Enron on its tax planning?

Kenneth Clarke: There are probably even more victims to be added to the list, but I believe that it is indeed internationally the same firm, but no doubt some very good people worked for that accountancy and consultancy firm. It was Enron rather than working for new Labour that brought it to grief, but the firm did indeed work for both and helped to produce this particular proposal.
	Why was the decision taken? They looked at the argument, familiar to anyone at the time, that if companies were stopped from paying dividends as demanded by pension funds and were encouraged to retain profits, it would boost investment. That was repeated and has been repeated again over the last few days. It was a convenient argument to use whenever people were looking in that direction to raise revenue. However, as the hon. Member for Twickenham said, subsequent events proved that that was quite untrue. In any event, I do not accept it because the idea that if a company has produced a surplus, the best form of investment for it is to plough it back into the same companyor that if it distributed that surplus to the markets, they could not find better ways of investing the money in other ventures and other businessesis a somewhat preposterous one.
	If anyone returns to that argument, as new Labour Ministers do, I hope that we will not go back to the absurd idea that successful companies should hoard all their profits and not return any of the money to the owners as if that were the best way of making use of the surplus generated. In today's modern markets, which work very well, I believe that quite the reverse is true. All the pressures under the present Government are for share buy-backs and distribution of dividends because most people accept that that former argument was wrong and that the best way to proceed is to encourage the distribution of dividends so that the market can make use of them in new ways.

Si�n Simon: Surely what this measure was doing was precisely removing the market distortion of the subsidy so that the company could decide for business reasons what was the best proportion to invest back in the business and what was the best proportion to pay back in dividends. That should not be distorted by the tax subsidy.

Kenneth Clarke: That was the argument, but as I have just explained, I do not accept it and I do not think that subsequent history showed that it had that effect. It actually made no significant difference. That argument may have been used even by my predecessors in office, but it has been a convenient excuse to put forward when a Chancellor is looking for revenue.
	Let me move on to how and why the decision was taken. Labour apologists for what happened keep going back to former decisions by my noble Friends Lord Lawson and Lord Lamont, which took place in quite different circumstances. It is relevant to look further into the precise time that we are talking about and the state of the economy then. The three Members I have identified were sitting in that hotel suite at the same timeprecisely the same timeas my right hon. Friend the Member for Charnwood (Mr. Dorrell) and I were looking at the same proposition. We rejected the argument about distributing dividends and the argument that the pensions funds could carry this. It is possible to say that we came to a conclusion that, looking back, was preferable to the one that they reached. I do not believe that, in the end, in any event, that issue is what drove the three new Labour pioneers to the conclusion that they came to.
	I turn to a book that has been cited once alreadyI thought that my hon. Friend the Member for Tatton (Mr. Osborne) was going to take all my speech when he opened the debate. The book is called The Unconventional Minister: My Life Inside New Labour and it is by the hon. Member for Coventry, North-West (Mr. Robinson). I commend it. I am grateful to him for giving me an inscribed copy when he produced it. I am using it only for political criticism of the decision and certainly no kind of personal attack on him or either of his colleagues. He is candid and makes it quite clear that they were searching for revenue. On page 88, when discussing looking at whether the calculations made by Andersen's and being checked by the Treasury were right, he says:
	We needed the money. It had to come from somewhere.
	That was what actually drove the decision in that first tax-raising Budget in 1997.
	Why did the Government need the money? The main problem was that they had promised not to raise personal taxation. That was a successful electoral ploy and totally robbed me of the best argument that I was hoping to use against them. They were raising the money to fund their youth employment schemes and other measures. That is what it was for. The hon. Gentleman's book reminded me that the windfall tax had been announced to pay for that, but it was not enough.

Geoffrey Robinson: indicated assent.

Kenneth Clarke: The hon. Gentleman is agreeing. Well, it is his own book: it is a good source. The Government had to find some tax that they had not told anybody about in order to fill the shortfall. They may also have suspected that there was a kind of structural deficit and they had to do something about it. He refers to that as well, I think. But the key thing was that the Government believed that they had to raise some money without raising any personal taxation. It had to be corporate taxation and this move was the easiest way because it would raise an astonishing 5 billion per annumand nobody would understand it apart from a few anoraks in the House and a few people in the pensions and accountancy industry. It was the original, and most profitable, stealth tax. That is how it all emerged.
	A sadness is that the Government turned out not to need the money. It was the beginning of some extremely bad forecasting that they made in subsequent years. They were not able to anticipate where the dotcom bubble in America was going to take us. Nobody did; I did not when I made my remarks about recession. They began to run massive unsolicited and unexpected surpluses. It was years before they needed the money. Sadly, nowadays they are still spending about 6 billion a year and no one can find an easy way of getting out of this continued drain on pension funds.
	They did what they did to raise the money and because it was a stealth tax. It did terrible damage to the pensions industry, pensioners and the legitimate expectations of many of our constituents.
	I listened to the Chancellor defending himself and saying what a great decision it was and how he would make it again. He allowed fancy to run away with him. He was plucking things from the air to a quite extraordinary degree. The idea that I had used the argument that we were going to go into recession against him was nonsense. That came when the Governor of the Bank of England was raising interest rates and the Chancellor was raising taxation at precisely the same time, when we were already slowing down the economy. My right hon. Friend the Member for Horsham (Mr. Maude) and I were unlucky: all that happened was that the economy went flat. There were two successive quarters of stagnation. We never went into recession. But that was later.
	Corporation tax was used in mitigation. In my last Budget, I reduced the small companies rate of corporation taxquite the reverse of what has just been done by the Chancellor. My recollection is that the Government did not cut corporation tax until 1998and they did not actually cut it. They took the headline rate down by 2 per cent., but they altered the method of payment to quarterly on advance estimates so that the cash flow into the Treasury was increased by what they did to corporation tax. It is bizarre to use that excuse. Until very recently, the Labour Government had been raising corporate taxation incessantly during all the time in which they had been in office. The Chancellor then went into even wilder fancies by saying that corporate profits had risen as a result of the decision. I cannot for the life of me understand how corporate profits rose.
	As has been pointed out, the inescapable fact is that the decision, on international financial reporting standards calculations, has cost at least 100 billion over the years. The cost is now running at 6 billion a year. Compared with the previous arrangements, 20 per cent. of the dividend income of pension funds is being sacrificed to the Treasury. Whereas nine out of 10 members of occupational pension schemes were in defined benefit schemes when we left office, only one in 10 is now in a defined benefit scheme. It is estimated that deficits in the pension industry are running at about 100 billion, which is exactly the figure that has been extracted so far by the tax.
	The reaction to this is relevant. The way in which the Chancellor gets carried away by using different time scales to make his points, clutching at figures from the past and making wild assertions about what has happened casts serious doubts on his judgment and where we were going. Yesterday, the Secretary of State for Defence came to the House in almost as big a pickle. He had made a quite appalling error of judgment, but he admitted that he had made a mistake and actually apologised for it. Had he not admitted that he had made a mistake, he would have been roasted alive on the Floor of the House, so he made a sound political judgment. I am afraid that the Chancellor's instincts are totally different. The very fact that he is criticised makes him defend his decision more vigorously by using wild arguments to justify it. He seems oblivious to the fact that although the decision was not the only cause of the problemthere was also longevity, the fall in stock market values and the mad regulation and valuationhe has done great damage to the pensions industry and his judgment was seriously

Madam Deputy Speaker: Order. The right hon. and learned Gentleman's time is up.

Geoffrey Robinson: I am pleased to follow the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke). He started his speech in a serious vein, but he seemed to degenerate into using the unfortunate tone of voice and personalised criticism that we have sadly come to associate with the shadow Chancellor. As I tried to say to the shadow Chancellor last time I commented on his remarks, I do not know why he wishes to demean himself in such a way. The more he personalises his attacks on the Chancellor and makes them as unpleasant as he does, the more his behaviour borders on a form of paranoia and suggests that he lacks self-confidence. If I may offer him some advicealthough he seems to have found much in my book, I doubt that he will take this from me across the Chamberhe would do well to moderate the personal nature of his attacks . [ Interruption. ] That remark was meant to be constructive; it was made to the hon. Gentleman in perfectly cordial terms.
	Let me address a couple of points made by the former Chancellor. He makes a great deal of his four-year period as Chancellor. The Opposition often talk about the golden legacy that we inherited in 1997 [ Interruption. ] Calm, calm. I am prepared to say that we did not find the usual mess left by Tory Governments. However, two significant aspects of the economic situation were of great concern, so we had to address them immediately. The first was the public debt. I have the figures for the former Chancellor, given that he seems to have forgotten them.
	When the right hon. and learned Gentleman took office, we had a massive public sector deficit of 42 billion. The reason the deficit had been allowed to run that high in 1992 was quite clear: the Conservatives wanted to win the election. To some extent, they succeeded in winning the election on the back of an unsustainable public sector boom and investment in the public sector. The deficit rose to 5 per cent. of gross domestic product, which was an exceptional figure by anyone's standards. When the right hon. and learned Gentleman vacated No. 11, he left us with a structural deficitor a deficit at any rate; he never answered my questions about whether it was structuralof 22 billion. During his four years of stewardship of the Treasury, his forecast for the deficit was wrong every year because he overestimated by 100 per cent. the reduction that he actually achieved.
	That was the first matter that we had to tackle in one way or another, and through a combination of factors. The other matterand it relates to why we made the Bank of England independent, and why the first act of the incoming Labour Chancellor was to show that he had the resolve to face the issue of whether it was necessary to raise interest ratesarose because the Conservative Chancellor, no doubt from sound party political electoral considerations, had refused Bank and Treasury advice to raise interest rates time after time, and month in, month out. Those were the twin matters that we had to address. The incoming Chancellor addressed one of them by taking the courageous political decision and brave economic decision to make the Bank independent. We all know that the present shadow Chancellor said that that move was a mistake, and he even voted against it, I think.

George Osborne: indicated dissent.

Geoffrey Robinson: He indicates that he did not vote against it, and I am prepared to accept that, but he certainly was not very vocal in his support for the measure. As for the right hon. and learned Member for Rushcliffe, the former Chancellor, in the weeks after we took the decision, he said that it was a mistake. Those were the two fundamental decisions that we had to take. Part of the issue, and I see that we must confront it as honestly as I did then, was that we had to raise money, via the windfall tax, for our welfare to work programme, which was 5 billion. We raised a bit more than that in the end. The programme was successful, and people were successfully employed. Another issue was a general closing of the gap, which we successfully achieved, perhaps even to a greater extent that we dreamed that we could. We then went into budget surplus, but we did not do that by dodging the difficult decisions, by finding some local bandwagon that we could jump on, or by flirting with a superficially attractive idea that makes a brief apparition on the political stage. We did it by facing up to the fundamentals and taking difficult decisions.
	The shadow Chancellor, who is a recent convert to the idea of facing up to the issues, has the courage to say to his party's Back Benchers, whatever groups they are inthere seem to be so many of them; I cannot keep up with them these days

David Taylor: The Cornerstone group.

Geoffrey Robinson: Yes, and there is the No Turning Back group. They want 40 billion of tax cuts, but the shadow Chancellor will not say where they are to come from, and of course he will not say that his party will reinstate the tax credit system. Of course he knows that it would be wrong to do so. I hope that later we will hear from the Secretary of State for Work and Pensions on the steps that we are taking to deal with the real problems that we face.
	We heard very good contributions from the hon. Member for Twickenham (Dr. Cable), who led for the Liberal Democrats in this debate, and my right hon. Friend the Member for West Dunbartonshire (John McFall), who is the Chair of the Treasury Committee. He made a serious contribution on a serious problem. We face a savings problem and a long-term pensions problem, and we have to find consensus to deal with that. Those who have chosen to make a personal attack on the Chancellor and to turn the issue to temporary party political advantage have done nothing to advance the debate, which is one in which the whole House and all the parties have to engage. That has been made clear [Interruption ]not by the hon. Member for Beverley and Holderness (Mr. Stuart), who makes an interjection from a sedentary position, but by many others in the House. The shadow Chancellor does nothing to contribute to the debate, given the tone of voice that he used and the party political way in which he deliberately sought to exploit an issue that is of public interest, but not for the reasons that have been given.

David Taylor: Was my hon. Friend as disappointed as I was to hear the right hon. and learned Member for Rushcliffe (Mr. Clarke), the last Conservative Chancellor, misrepresent the position in relation to advance corporation tax? The former Chancellor said that the changes were made to increase cash flow, and it is certainly true that there would be increased cash flow at the start, but would that not simply re-profile the amount of corporation tax that would fall due? It would not alter the total. To misrepresent matters in that way does not improve the case one iota.

Geoffrey Robinson: My hon. Friend is correct, and I fear that the right hon. and learned Member for Rushcliffe, who did not have much interest in the detail of policy while he was in the Treasury, may not have understood that point. One thing that we did when we corrected the whole matter, when we abolished dividend tax credit, was to introduce a new instalment payment system for corporation tax. Of course, inevitably linked to that was the removal of advance corporation tax; in fact, there was a cash flow advantage to the Exchequer, of which the Confederation of British Industry was very aware. I will come back to that point in a moment.

George Osborne: I am grateful for the hon. Gentleman's advice that I should be gentler with the Chancellor in future. Will he explain something, because he is in an almost unique position to do so? He explained why the decision was made to raise taxation, and he made the point that the then shadow Chancellor thought that he had to tackle the budget deficit. Why was that decision kept secret? Why were those tax plans developed in such detail in opposition, kept, so he claims, in a safe in his hotel room, and never revealed to the public or perhaps even, as I understand it, to the leader of the Labour party at the time? If that difficult decision, as the hon. Gentleman says, needed to be made, why was he not honest about that to the public before the general election?

Geoffrey Robinson: The hon. Gentleman is absolutely incapable of distinguishing between a fundamental point and a personal point. He is at it again, trying to imply that there is something wrong about trying to work out policies in opposition. I commend my book to him, as it will teach him how to behave in opposition, which he has not learned yet, as well as preparing him for government. Every party that makes a serious attempt to become the Government of this country does serious work in opposition with serious players, which is one reason the Opposition have been distinctly unsuccessful on three occasions in gaining the country's trust. People saw through all that they said on immigration at the last election, as they saw through what they tried to do on tax in previous elections. They jumped on an apparently attractive bandwagon, but the wheels came off when they were under scrutiny. With that mind, let us deal with the central issue [ Interruption. ] If Opposition Members would like to intervene, I am happy to give way.

Graham Stuart: rose

Geoffrey Robinson: I will give way to the hon. Gentleman in a moment. He was very patient in waiting for the Chancellor to give way, and made a terribly telling intervention. I look forward to another one, but may I first deal with the point about the official advice that we received?
	There were, as the right hon. and learned Member for Rushcliffe correctly said, a range of views in the Treasury and in the Inland Revenue, which were the two principal Departments giving advice. Initially, the Inland Revenue was dubious about the figures that we had worked out in oppositiononly the Treasury computer held all the information needed to achieve an up-to-date and accurate estimatebecause it had looked at the problem before, and the numbers were nowhere near as favourable to the overall proposition of the three interlinked changes as was later the case. We had to wait about two weeks until the Inland Revenue came back, thoroughly in agreement with the proposals that we had evolved. Indeed, the person who led for the Inland Revenue said that it was something that he had wanted to do for many years.

Graham Stuart: rose

Geoffrey Robinson: May I just finish this point, because it fits the whole and may be of some interest to the House? As the right hon. and learned Member for Rushcliffe said, the proposal had been considered before, but it was rejected, principally because of the fear of political repercussions. He could not face up to making tough decisions, just as he could not face up to increasing interest rates or to making the necessary cuts that have since brought the public accounts back into balance. That is why the Opposition failed to do itand it is that lack of political courage that dogs them to this day. They seek to exploit easy opportunities, and that hollowness means that they will be found wanting at the next election.

Graham Stuart: Why was the public not told?

Geoffrey Robinson: The figures were printed very fully, and the hon. Gentleman will find the 5 billion figure in every relevant part of the documents relating to that time. I cannot see why there is any surprise about that. Everyone knew it then, and everyone knows it now. The figure was in the public domain. To my knowledge, nothing has been revealed, apart from the fact that the Opposition, with the help of some parts of the press, are trying to impose a construction that suggests that in some way the Chancellor personally rejected official advice from the Treasury. Nothing could be further from the truth. As I said a moment ago, and as the previous Chancellor said, a range of advice was available. Of course, officials gave us caveats and warned us of the dangers. They told us the same about the Bank of England, which is no doubt why the right hon. and learned Gentleman refused to make it independent, because he was fearful of what would happen if he did so. Just as we made the hard but correct decision on the Bank of England, so we took the hard but correct decision about the overall reform of corporation tax, which involved the abolition of tax credits. Any notion that the Treasury team or the Chancellor personally went against official advice is plain wrong. I hope that the House clearly understands that.
	None of the excerpts that the Opposition have read out from the official papers delivers the formal burden of official advice that we received, which was that we should proceed with the overall reorganisation of the corporate tax system. The CBI itselfand I spoke personally to Adair Turnerwas in favour of the overall reorganisation. In particular, the industry as a whole wanted to get shot of advance corporation tax. If ACT were abolished, tax credits had to go, and if that happened, there was every reason to provide a more balanced and even patterna level playing fieldof corporate taxation that would not favour dividends, capital investment and retention, still less companies that wanted to reinvest funds that they could not profitably use in their own business. That would be left to the market and not to an invented and distorted tax mechanism that no one ever had in mind when ACT was introduced.
	I come back to the two central points on which I am pleased to base my personal contribution. This is a serious debate, and it should be about a serious problem that the country as a whole faces. I hope that, after this unwanted and unnecessary political intrusion instigated by the Opposition, we can return to the consensual approach adopted by the main parties in the House. The reasons we made that decision were quite clear, and it was based on the burden of advice from the Inland Revenue and from the Treasury that we should proceed with the changes that we were making. It was necessary, as were the other decisions that we made about the independence of the Bank of England, about raising interest rates and about closing the gap in the disastrous public expenditure levels that we inherited from the Tories. I do not want to rehearse again the specious and fallacious arguments made by the Opposition, which were comprehensively demolished by the Chancellor in his major contribution. I hope that the shadow Chancellor will take on board what I said earlier, because in such head-on confrontations, the message that reverberated around the House is that he has some way to go before he reaches the measure expected of a shadow Chancellor. As for us, we stand by those decisions: they were right then, and they are right now. We have problemslet us face them responsibly.

Peter Lilley: It is a great pleasure to follow the hon. Member for Coventry, North-West (Mr. Robinson), whose amiable lack of self-regard enables him openly to admit that Labour deceived the British electorate at the last election. He sees nothing wrong in developing policies in secret, which it refused to admit. As an aside, I got wind of those policies before the election. I held a press conference during the election campaign alleging that it was the Labour party's intention to abolish advance corporation tax. Only the  Financial Times took me at all seriously, publishing a comparatively modest article saying that that was allegedly being considered by the Labour party. No one else paid any regard to the matter, and even I scarcely believed that it really intended to do it. None the less, I shall put in some context the decision that subsequently followed.
	When I became Secretary of State for Social Security, the first crisis with which I had to deal was the Maxwell pensions crisis. The former Labour Member for the Milton Keynes area had left his companies' pension funds bereft of hundreds of millions of pounds, so tens of thousands of pensioners' livelihoods and future were at risk. We had to deal with thatwe did not do so, but that is not the issue today. It meant, however, that I had enormous sympathy for my successors when they faced a Chancellor of the Exchequer who introduced a tax that took billions of pounds from the pension system, which affected every pensioner and future pensioner in the country. Indeed, on the night that he introduced that tax, I described it as the Robert Maxwell memorial tax, because no one before the Chancellor had thought that they could get away with removing money from pension funds without anyone noticing until it was too late. That is what our Chancellor did, but he has not got away with it indefinitelyonly for too long.
	I want to look very simply at the Chancellor's record on pensions and his reasons for introducing this change. He inherited a system that, in the words of the right hon. Member for Birkenhead (Mr. Field), was the envy of the world. He inherited an occupational pension scheme that was accepted as the jewel in the crown of pensions systems worldwide. As a result, we were enabled to build up funding, savings and investments for future pension liabilities in this country to a level that was not only more than that built up by any other country in Europe, but more than all the other countries in Europe put together had saved and invested to meet their future pension liabilities. We faced less of a potential burden of tax to fund our future pension liabilities than those countries, and we were generating a huge annual flow of savings, which were available for investment in this country or to acquire assets abroad to meet the burden of future pensions.
	In 1997, when the Chancellor took over, occupational schemes were generally well funded: they were secure, they were growing, they were giving earnings-related pensions to an increasing number of people and they were fairly taxed without disincentives to save. Let us take each of those points in turn and see what has happened under the tenure of this Chancellor.

Wayne David: Will the right hon. Gentleman give way?

Peter Lilley: May I make a little more progress? I will happily give way when the hon. Gentleman has something about which to ask a question.
	Pensions were well funded in 1997. We know that because when the Chancellor introduced the tax, one reason that he gave was that they were over-fundedhe thought that they had too much money. Now, the deficits are measured in billions of pounds. I have asked the Library for the figures, and it puts the gross deficit shortfalls of pension funds at some 76 billion, which is a turnaround from surplus to deficit that is commensurate with the net present value of the 5 billion a year taken from pension funds and its impact on the value of those funds' assets.
	The Chancellor had the cheek to suggest that my hon. Friend the shadow Chancellor needs a lesson about the value of assets, but it is he who needs the lesson. What is important is whether assets exceed liabilities, which was the case in 1997. Now, the liabilities of pension funds exceed the assets. That is the Chancellor's record, which he must answer for, and the lesson that he needs to be taught.
	We were told then, and we knew well, that occupational pension funds were secure. Robert Maxwell had delivered a blow to confidence, but that blow was enormous precisely because up to that point no significant public company had ever gone into bankruptcy while being unable to meet the liabilities of its pension funds. Such pension funds were sufficiently well founded that even if the company did not survive, the pension fund did, or if the funds were underfunded, they were met by the resources of companies. When I faced the Maxwell pension crisis, I asked officials, What normally happens in such cases? They said, This has never happened before, so secure were we. Now it happens all too often, and all too many companies have failed leaving deficits in their pension funds. Hence the amendments that Conservative Front Benchers will introduce tomorrow to the Pensions Bill, when Opposition and Government Members will have an opportunity to try to make good the deficits and help the pensioners who are now caught in an occupational pensions system that is no longer as secure as it was.
	The Chancellor has mentioned 8 billion being made available, albeit over 60 years, which is a measure of the crisis that he has created.

David Taylor: On pension fund deficits, surely the right hon. Gentleman should refer, at least in part, to the fact that after a long boar market the FTSE 100 was at about 7,000 on 31 December 1999, and that it halved to 3,500 by March 2003. Surely that played a huge role in the decline of pension funds, at least for a periodas we sit here today, it has, of course, almost climbed back to those levels. Why does he not refer to that? It is important, is it not?

Peter Lilley: I am grateful to the hon. Gentleman to doing so for me. I entirely take the point. Markets go up; markets go down; markets go back up again. When they go down, it is like the tide going outit reveals who was swimming without wearing any swimming trunks. When the market went down, it revealed the shortfalls in the provision that the Chancellor had made available and the problems that he had created.
	The system was growing before this Chancellor came into office, but now pension funds are closing. The majority of them are closed to new members, and two thirds of final salary systems have closed on his watch. Lord Turner has forecast the virtual euthanasia of final pension occupational schemes. The crown jewel of the occupational pension system has been successively plundered and sold off to the fences.
	The Chancellor inherited a system that was fairly taxed and well incentivised. The system was fairly taxed in the sense that it was designed so that people did not pay twice. Having paid taxes on their incomes and made savingsthe companies in which they invest pay taxpeople did not pay a further round of tax, which is what the complex system of advance corporation tax credits was all about. The tax credit reflected the value of the taxwhen taxes went down, the tax credits went down. The bulk of the reductions reflected that, rather than being a cut in the credits without any corresponding cut in the tax for the most part.

Stephen Dorrell: My right hon. Friend has touched on an important point of principle. My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) referred to the fact that that option was rejected when he was Chancellor, partly because the arguments about rebalancing investment flows were rejected and partly because the tax change implemented by the Chancellor introduced for the first time double taxation on pensionerstaxation on income into the pension fund as well as taxation of the pension paid to the pensioner.

Peter Lilley: My right hon. Friend is absolutely right. Any fair system taxes money either when it goes in or when it comes out, but not when it goes in, when it is in there and when it comes out again, which is where we are heading under this Government.
	There is another change that no one has mentioned so far, which is the double whammy that this Chancellor landed on the pensions system, namely, the resort to extensive and almost universal means testing. That has meant not only that the pensions system bears more taxes, but that the incentive to save is reduced, particularly for those on middling and low incomes. That will have a serious, long-term deleterious effect on savings and provision for pensions in this country, not least because it means that most providers of pensions are now afraid that they will be acting unwisely if they advise someone who is not very rich to save and invest, which is surely a serious indictment of the situation that this Chancellor has created.
	The Chancellor justified what he did in his Budget speech and subsequent interviews in three ways. First, he said that the measure would increase investment. Figures from the Library show that when the measure was introduced business investment amounted to 10.4 per cent. of GDPit subsequently went down before recovering again to 10.4 per cent. of GDP. The measure has not raised the level of investment in this countryI will not pretend that the decrease was due to the tax changeand it has failed in the central thing that it was supposed to do.
	The Chancellor said that the measure would discourage dividend payouts. As we all know, dividend payouts follow a cycle, but in the nine years since the measure was introduced, the payout rather than falling has risen compared with the nine years before its introduction. The amount is only small, but the measure has had the opposite effect, if any, to that which the Chancellor proposed and forecast. He imagined that there would be a complex system whereby even though the cash flow of companies would clearly be reduced by this tax measurethere is no way of taking money from companies and pension funds that does not leave them with lessthey would none the less invest a higher proportion of a reduced cash flow, which would increase asset values in the long term sufficiently to offset the effect of the money that was taken out. That was an absurd, incredible and complex thesis that I am pleased to say the Chancellor did not resurrect today, although it will be interesting to see whether his devoted colleague and potential successor will do so in the wind-ups.
	Finally, the Chancellor said that it could all be paid out of surplusesthat these pension funds were awash with money that served no purpose, and that they could pay it out at a rate of 5 billion a year with no harm done. As we have seen, however, those surpluses were available at that time but subsequently disappeared and have been replaced, by and large, by deficits on a fairly substantial scale.

Edward Balls: I will resist the temptation to ask the right hon. Gentleman about pensions mis-selling. I am following his argument very carefully. Is his refutation of the Chancellor's argument based on the fact that dividendsthe profits paid out by companies in the UKhave been rising over the past 10 years under this Government?

Peter Lilley: No, it is not, but never mind. If the hon. Gentleman reads the text in  Hansard he will be able to see what I was saying.
	The Chancellor said that the percentage of dividends paid out would decline; in fact, it has risen.  [ Interruption . ] I am sorrythe percentage of profits paid out as dividends.

Edward Balls: Let us be clear: the right hon. Gentleman is saying that dividends have been rising over the past 10 years.

Peter Lilley: I was referring back to the Chancellor's Budget speech, when he said:
	The present system of tax credits encourages companies to pay out dividends rather than reinvest their profits.[ Official Report, 2 July 1997; Vol. 297, c. 306.]
	If he introduced this measure to discourage paying out dividends, he has failed, as companies paid out a higher proportion in dividends in the subsequent nine years than they did before.

Edward Balls: rose

Peter Lilley: I will allow the hon. Gentleman one last attempt.

Edward Balls: Given that the overall level of profits for corporations in the UK is at a record high, if the level of profits paid out in dividends has gone up, that means that dividends going to pension funds and to recipients of those profits have also been rising. The right hon. Gentleman is therefore saying that profits and dividends being paid out have gone up over the past 10 years, which is a fair point.

Peter Lilley: That series of interventions by the hon. Gentleman was probably worse than his contribution on the Today programme. All that he may end up saying is that the Chancellor successfully achieved the opposite of what he intended, but it was not such a bad thing after all.
	The Chancellor committed two great sins of commission by imposing a heavy burden of taxes on pension funds and introducing extensive means-testing, but he committed an even greater sin of omission, which was the failure to cope with the growing issueI would not call it a problem; it is a good thing that people are living longerof longevity. The Government failed to address that for their first eight years in office. Why is that? I suspect that it is in large measure to do with their misrepresentation of the pension proposals that we published ahead of the 1997 election. Having so grossly and grotesquely misrepresented our proposals for reform, they could not return to the issue until it was all in the past, when they came back with something not entirely different from what I had proposed. It is a case of dishonesty being the root of a failure to act subsequently.
	I believe that on this issue the Chancellor has revealed his failures of judgment and unwillingness to accept when he has made mistakes. It is time to drive home to him that he seriously damaged the glories of the pension system that we had in this country by taxing it, means-testing it and failing to adapt to the longer life expectancy that we all now enjoy.

Si�n Simon: Being a socialist, I am a compassionate sort, and I think that Labour Members have been unduly hard on the Conservatives. My right hon. Friend the Chancellor and my hon. Friend the Member for Coventry, North-West (Mr. Robinson), the former Paymaster General, were very mean to the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), and to the shadow Chancellor. The Conservatives should be congratulatednot only those on the Front Bench, but those in the serried ranks of their predecessor generations, of whom there have been rather a lot in the past 10 yearson the only successful piece of guerrilla politics in what has otherwise been a sterile, acrid, wasted decade of opposition.
	Opposition day debates on spurious subjects and specious axioms are nothing newindeed, they are the very stuff of these afternoons. It is unbelievable that we are having this debate today, 10 years on, and we can only look forward to the rest of the series of retro-debates. Perhaps next week we could have one on the calamitous independence of the Bank of England and the consequent interest rate crisis, on the disastrous introduction of a national minimum wage and the consequent inflation shock, or on the disgraceful cuts in corporation taxes which accompanied the removal of the pension fund dividend subsidy, thereby causing a sharp, immediately discernible and outrageous rise in investment. Or, with a slightly different flavour, we could debate the consistent reduction of the dividend subsidy by successive Tory chancellorsa gradual phasing out of this market distortion, catastrophically prefiguring its eventual, extremely successful, removal by the Labour Government in 1997.
	When the removal of a subsidy becomes a smash-and-grab raid, we really are in the world of doublespeak and upside-down-think. Even credit is a misnomer when the institutions in question do not pay tax. This was a subsidy, and one that was widely understood to have serious, long-term, structural, negative effects on the level of investment in the economy. Everybody knew that. We knew it when I worked in the global HQ of a FTSE top 10 company in the early 1990s. The dividend was deleterious, but there was no choice because of the tax regime and because of the expectations that it created in the City. Even the Tories knew that perfectly well. Even Norman Lamont, advised by the right hon. Member for Witney (Mr. Cameron), knew it. That is why he said exactly that when he cut the subsidy for the fifth time in 1993.

John Redwood: Does not the hon. Gentleman understand that it was advance corporation taxnot a subsidy, but a rebate of a tax?

Si�n Simon: It was not advance corporation tax. We are talking about the dividend tax credit, as it was called, which was a subsidy paid in cash to pension funds, which do not pay tax. I am afraid that it is the right hon. Gentleman who does not understand.
	This was a subsidy widely understood by the Tories to be deleterious; otherwise, why would they have phased it out gradually on five successive occasions? Their Government were not only pouring cash unnecessarily down the necks of pension funds but incentivising companies to pour their cash down the necks of pension funds instead of reinvesting it into their businesses. Not only did everybody know at the time that something needed to be done, but no serious, impartial, disinterested commentator is in much doubt that, as part of a package including cuts in corporation taxes and increasing capital allowances directly to stimulate investment, it worked.

Kenneth Clarke: The hon. Gentleman has been encouraged to perpetuate the myth that the great scheme involved cutting corporation taxes. That was not the aim. I refer him to the book of the hon. Member for Coventry, North-West (Mr. Robinson), which makes clear on page 86:
	In the first place, if we were simply to get rid of ACT and leave the other existing arrangements for the payment of corporation tax in place, we would face a net loss to the exchequer in cash-flow terms of over 1 billion per year. This was unthinkable. The road to reform should take us in precisely the opposite direction.
	He goes on to describe the way in which they ended up producing a system that resulted in a cash flow to the Treasury of more than 20 billion.

Si�n Simon: I think that I reviewed my hon. Friend's book when he published it. It is an enjoyable read, but I believe that I said at the time that it was perhaps imperfect. It has misled the right hon. and learned Member for Rushcliffe to overlook the fact that at the same time as the dividend subsidy was removed, the main rate and the small firm rate of corporation tax was cut as part of a package that succeeded in stimulating investment. The investment in the economy, profitability and the size of the pension funds increased significantly between the policy's introduction and the dotcom crash of 2000. Everybody knows that.

Graham Stuart: I wish to ask a simple question. Does the hon. Gentleman believe that taking money out of the pension funds in some way boosted them?

Si�n Simon: No money was taken out of the pension funds. A previous Government's cash subsidy, which was being given to pension funds but was not advancing their interests, was removed for the long-term benefit of the economy. That was immediately perceived to be successful. That is what happened. The notion that any current problems or changes in the pension industry are attributable to the removal of the subsidy in 1997 is not simply wrong but ridiculous. That is why I am so impressed, as a partisan politician, that the Conservative party has got the subject on the Order Paper an unbelievable decade later.
	Let us consider Kaletsky's column in  The T imes last week. I do not know whether hon. Members have read itnone, strangely, has mentioned it. I commend it to everyone. One of the many comments that he made was that
	the claim that the 1997 'tax raid' was the main cause of pension fund closures, or even an important contributory factor, is simply false.
	As he goes on to explain:
	The fact is that the pre-1997 pensions industry was not remotely as healthy as its lobbyists have claimed. The closure of traditional private sector pension funds was already becoming inevitable because of regulatory changes imposed by successive governments over the previous 20 years.
	We know what kind of Governments they were in the 20 years leading up to 1997, do we not? I do not recall that they were Labour Governments.
	Let us be clear: even it were not for the dotcom crash that wiped 250 billion off the value of the stock market; even if contribution holidaysencouraged by Tory Governments through their capping of surpluseshad not been recklessly overused, and even if life expectancy had not risen so dramatically, there would still be major challenges for the pensions industry because of the serious regulatory changes, which fundamentally altered the landscape of the industry, the implications of which were not properly foreseen or understood when the Tories introduced them.
	Having to pay spouses' pensions, protect pensions against inflation and offer equitable treatment to early leavers had, along with life expectancy, already doubled the cost of providing private pensions. To quote again the esteemed and disinterested Kaletsky in  The Times:
	The last straw... was the Major Government's panic reaction to the Maxwell pensions scandal.
	He finally quotes Stephen Yeo, as several others have done, who advised the Tories on pensions. It is a shame that he did not tell them at the time that the business of getting rid of the subsidy being responsible for a pensions catastrophe was nonsense.
	The Tories know it is nonsense, so what on earth is the motion doing on the Order Paper? To any student of economics or public policy, it would be baffling. To the student of politicsof the cynical, deceitful, disreputable way in which it is possible to practise politicsit is instructive. Hon. Members too often have recourse to Josef Goebbels's line in 1933, which they often misquote and misattribute, that
	any lie constantly repeated eventually becomes the truth.
	It is not a line that fits our purpose here because it is far too strong. Conservative Members have not been lying about the matter, obviously.
	However, the variation on Goebbels's theme that dear old Willie Whitelaw played to the Conservative party conference in 1985, when he said that
	we must never forget the value of constant repetition to get our message across
	is not strong enough because it does not include the implication that it does not matter how misleading or lacking in truthful content the message that the party in question is conveying isall that matters is how often one says it.
	Any young proto-politicians who seek instruction in the worst excesses of the dark arts should note the sheer, dogged, determination, during a period of utter barrenness, despondency and failure, to keep the non-story alive. Looking back through the records, there is quite a roll of honour from the Conservative point of view, though a complete rogues' gallery from the point of view of serious debate about the pensions on which people are obliged to rely often at the most vulnerable time in their lives.
	The right hon. Member for Hitchin and Harpenden (Mr. Lilley), whom I greatly esteem in many other contexts, opened the Budget debate about which we have heard so much in 1997, and claimed that the change in the dividend subsidy, combined with the windfall taxperhaps another potential Opposition day debate; the windfall tax on the private utilities might be a good topic for next week or the week afterwas
	a double whammy for pension funds; it is the Robert Maxwell memorial Budget.[ Official Report; 3 July 1997; Vol. 297, c. 430.]
	In the same year, the right hon. Member for Richmond, Yorks (Mr. Hague) stated that the Budget was
	a double whammy against pensions... It is a smash and grab raid on pension funds in this country.[ Official Report; 2 July 1997; Vol. 297, c. 321.]
	There is the double whammy theme. In 1998, the right hon. Member for Horsham (Mr. Maude) wittily reminded us:
	Last year we had the Robert Maxwell memorial Budget, with its vicious raid on pension funds.[ Official Report, 14 July 1998; Vol. 316, c. 198.]
	Vicious? The Chancellor removed a subsidy to stimulate investmentand a year later it is vicious.
	In 1999, the right hon. Member for Wells (Mr. Heathcoat-Amory) told us:
	In the Government's first Budget, there was a 5 billion a year raid on pension funds as a result of the withdrawal of dividend tax credits.[ Official Report, 28 April 1999, Vol. 330, c. 351.]
	In 2000, Mr. Michael Portillo, typically lyrical, stated that
	the Chancellor is still taking 5 billion a year from the pension funds of people who are now saving for their retirement. He is attacking the people who are trying to do the right thing and want to be independent. He is impoverishing future generations of pensioners, driving more and more of them to be dependent on the state.[ Official Report, 13 December 2000; Vol. 359, c. 662.]
	The student should pause at this point and remember that that is not only not true, but ridiculous. Everybody knows that it is ridiculous. The Conservatives know that it is ridiculous. When they were in office, they did exactly the opposite from what they say. However, now they simply keep saying ityear after year and over and over again.
	In 2001, Lord Strathclyde warmed to the theme:
	I cannot think of any tax rise
	it is now a tax rise
	more retrograde than his massive tax raid on pensions savings... How can this assault and battery of prudence be defended?... 'it is like Gordon Brown leading a 25 million Brinks Matt robbery every day of the working year.'[ Official Report, House of Lords, 14 March 2001; Vol. 623, c. 853.]
	That goes on and on, right up to three weeks ago, when the hon. Member for Chipping Barnet (Mrs. Villiers) told us about the famous time when the Chancellor dealt a body blow to savings with what has now become his 100 billion raid on pension funds.
	The Chancellor removes a 3.5 billion to 4 billion subsidy to stimulate investment and it becomes a vicious, 100 billion raid on pension funds. For cynical, self-serving, misleading party politics, I take my hat off to the Conservatives. It is remarkable that they managed to get the motion on the Order Paper without the Clerks rolling about laughing and the printers becoming so hysterical that they could not get the document out.
	However, for serious debate about people's economic security, it is not funny. To call the ending of a damaging 4 billion subsidy, which the Tories were in the process of phasing out five or six times, a 100 billion smash-and-grab tax is not only ridiculous but disreputable. To be so baldly at odds with the facts is not clever, but to scare people about something that can make them feel so vulnerable is not kind. It is for that serious reason that Labour Members will be glad to vote against the silly motion tonight.

Stephen Dorrell: I begin by declaring an interest as a trustee of an occupational pension fund, and as a director of the associated principal employer.
	I want to congratulate my Front-Bench colleagues, for an eerily similar reason to that being used by the hon. Member for Birmingham, Erdington (Mr. Simon) to attack them. Over the past 10 years, the Chancellor of the Exchequer must frequently have quietly congratulated himself on the relatively low amount of political pain that he has had to suffer for the huge amount of money that he has taken out of the occupational pension schemes in this country, and for the damage to which that has contributed during that period. I welcome the fact that a combination of the Freedom of Information Act 2000 and the activities of  The Times and of my right hon. and hon. Friends on the Front Bench has now brought the issue into sharp relief in the political debate. Those on the Conservative Front Bench should be warmly congratulated on that.
	It is worth reminding ourselves why it has taken so long for this issue to take off as a subject of political debate. As my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) knows better than most, and my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) probably knows even better, anyone who tries to explain pensions issues in a political context fights an uphill battle. It is too easy for the issues surrounding pensions to degenerate into impenetrable jargon. That is precisely why the Chancellor chose this target in the privacy of the top-floor suite of the Grosvenor House hotel before the 1997 election. It also explains why he chose to present the reality of this tax increase on the pension funds in very delphic language during the 1997 Budget.
	If people make an issue sound complex, there are usually two explanations. One is that the speaker does not understand the subject; the other is that they have something to hide. The Chancellor has consistently made this subject sound complex, but not because he does not understand it. He is a very bright man; he understands it with absolute clarity. He has made it sound complex because he has had something to hide, and my Front-Bench colleagues are to be congratulated on at last revealing what he has spent 10 years hiding.

Stephen Hesford: The right hon. Gentleman has, like me, been listening to the debate. Unless I have missed something, no two people have given the same figure for this alleged pension raid, either on his Front Bench or in any other part of the House. Why is that? Is it because no such figure exists, or because nobody understands the issue, as he has just been describing?

Stephen Dorrell: I propose to stick with what I understand and, more importantly, with what my pensioner and employer constituents understand, namely, that it was a key factor of the Chancellor's policy in 1997, as was made clear by the hon. Member for Coventry, North-West (Mr. Robinson), to levy a significant additional tax revenue out of the pension funds. We can argue about the number; the figure that most of us will stick with is 5 billion. The Paymaster General clearly thinks that it is more, because he has drawn the attention of the House to the fact that dividends have risen over the past 10 years, so 5 billion might be an underestimate. The key fact is that that money was previously flowing into the pension schemes, and now it no longer does so. The key questions when additional tax is being levied are: who pays the tax and what is the consequence of levying it? I shall go on to discuss that question in a moment, but I shall give way to the Paymaster General first.

Edward Balls: I am the Economic Secretary. I am grateful to the right hon. Gentleman for giving way. I know that he has a great deal of expertise in these matters, partly because of the time that he spent at the Treasury, where he conducted a review into barriers to long-term investment, which was known as the Dorrell review. If a freedom of information request were to reveal the contents and background papers of that review, what would that tell us about the review's attitude to the dividend tax credit as a barrier to long-term investment?

Stephen Dorrell: We do not need a freedom of information request, because we had the details in glorious technicolour from my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), who was Chancellor at the time. It was revealed that we had assessed the options for this measure as a tax-change proposal, and that we rejected it on three principal grounds. The first was a purely practical one, namely, that we feared the effect that it would have on pension funds. The other two were issues of principle, both of which are important to the debate.
	The first, to which my right hon. and learned Friend referred in his speech, is that the argument for the change was that it would reduce a distortion in the tax system by reducing an encouragement to dividends and encouraging companies to reinvest in their own activities. That was also an argument put forward by the hon. Member for Birmingham, Erdington, and it was implicitly accepted by the Economic SecretaryI apologise to him for referring to him as the Paymaster General earlier. My right hon. and learned Friend, as Chancellor, made it clear at the time that he disagreed with that approach to policy on precisely the grounds that he set out to the House this afternoon, namely, that capital markets become progressively more efficient, and that, if we want efficient allocation of capital in the economyas we should, as an issue of public policywe will achieve that aim better through capital markets rather than through trapping investment flows within individual companies.
	That brings me to the third reason why we rejected the option, which, in view of what has happened since, will be of some interest. We did not agree with the analysis, also put forward by the hon. Member for Birmingham, Erdington, that saw the dividend tax credit as a subsidy to pension funds. It is important to understand why we did not accept that logic. Until the present Chancellor did what he did in 1997, the taxation of pension funds in Britain had always been based on the principle that the revenues going into the funds went in tax free, with the result that we were then able to tax the pensions paid by the funds in the hands of the pensioners. That meant that the capital build-up during the life of the pension took place on a pre-tax basis.
	That policy had been pursued for many years, and that was what led us to reject the option that the present Chancellor subsequently adopted. He has created a situation in which the revenues that come into the pension funds via a dividend come in tax paid. For the first time in the history of occupational pensions in Britain, the portion of the financing of the pensions that comes from dividends is now subject to double taxation. It is taxed when the income comes into the pension fund, and again when it is paid out as pension in the hands of the pensioner. That is why I hold the Chancellor responsible for having contributed in a major way to the practical decline of occupational pension schemes over the past 10 years. And that was precisely the practical reason that led my right hon. and learned Friendever a practical manto reject the abolition as a policy option.

Edward Balls: I am grateful to the right hon. Gentleman for giving way again. I am not making an accusation here, because, given the conventions that exist, I have seen none of the pre-1997 papers. I also do not doubt his word that the Chancellor of the Exchequer at that time rejected the case for this abolition. The case had previously been made for a reduction by his predecessor, advised by the right hon. Member for Witney (Mr. Cameron). Did the papers prepared for and submitted to the then Chancellorthe Dorrell reviewcontain a proposal that the dividend tax credit should be abolished, which was rejected by the Chancellor? Or did the right hon. Gentleman himself reject the idea and the background papers? I ask only because those papers have not yet been made public.

Stephen Dorrell: If the hon. Gentleman wishes to make a freedom of information request, he is no doubt as free as any other citizen of the United Kingdom to do so. What I think he will find is that the way in which I tended to work as a MinisterI suggest to him that it is a sensible way for any Minister, particularly a junior Minister, to workwas to follow the principle that there is not much point in committing a huge amount of effort to preparing a policy option without having first established whether the Minister in charge of the Department is a receptive audience to the proposal. I took the precaution of establishing that my right hon. and learned Friend was not a receptive audience.

Edward Balls: With respect, I began by pointing out the right hon. Gentleman's personal expertise in these matters. I know that his work at the time created a lot of interest, and it was called the Dorrell review, not the Clarke review. I entirely accept that the then Chancellor of the Exchequer made his decisions, but will the papers prepared for right hon. Gentleman for the Dorrell review and the background papers reveal his support for, or opposition to, the measure?

Stephen Dorrell: They will reveal that the options were examined and did not take the form of a final recommendation because we had had discussions that led to a conclusion.
	In the case of a final salary pension scheme, the bill for the Chancellor's policy is met by the employer. In the case of a defined contribution scheme, it is met by the individual's pension pot and, ultimately, out of the pension paid to the individual employee. It is therefore completely absurd for Ministers to claim, as they do, that the changes have helped employers, who have ended up paying the additional costs into their pension funds, or individual pensioners who are members of defined contribution schemes, who will end up receiving reduced pensions as a result of the increased burden on their pension fund. That is why it is correct to say that the primary effect of the changes has been to contribute, in a significant way, to the reduction in the availability of final salary schemes outside the public sector by roughly two thirds since this Government came to office.
	It is significant that in the Chancellor's responses to interventions all the statistics that he quoted in relation to the availability of final salary schemes ran out in 2000 or 2001. We are now in 2007 and anybody who has been engaged in private sector activity over the past decade must surely understand that private sector pension provision on a final salary basis has been in sharp retreat throughout that period and in particular in recent years. To an important extent, that is a result of the policies that the Government have pursued. It is also true that the primary effect of the changes has been to reduce pensions paid out by defined contribution schemes.
	My final comments focus on the secondary effects of the changes. Increased tax burdens have resulted in reduced availability of final salary schemes and in less generous payments by defined contribution schemes. However, there have been two important secondary effects, and it is important that the Government not only accept responsibility for them, but are seen to do so in public debate.
	The first secondary effect is that if additional costs to providing final salary schemes are imposed on employers, it has the effect of tipping some employersmarginal employersinto administration and receivership. It is those employers whose employees have been among the primary victims of the changes. Constituents of mine who were employed by the British United Shoe Machinery Company and who saw their savings evaporated, rightly hold the Chancellor not exclusively responsiblethe hon. Member for Twickenham (Dr. Cable) was right to say that there were other important contributorsbut responsible for public policy. The Chancellor took a position that was poor for those people at the margin and then made it worse. Their pension savings evaporated and they rightly hold him responsible for that effect.
	The other secondary effect is much more broadly based across the economy and in the long run, particularly if we can agree to lifeboat proposals for the people who have been badly damaged by companies that have gone into administration, much more concerning for the social structure of this country. If we take a pension world that is moving more and more towards defined contributions schemes, and where those schemes are, as a result of this tax policy, becoming less generous in terms of the pensions that they pay out, and combine that with the tax credit policies that the Chancellor has also been pursuing, and therefore the increased reliance of pensioners on means-tested benefits, we can see that we have hugely undermined the incentives on people to provide for their old age. The end result of his policy has been reduced individual responsibility because, as my right hon. Friend the Member for Hitchin and Harpenden rightly said, pensions advisers are, entirely rationally, telling people who are on relatively modest incomes that against the background of the high level of means-tested benefits and relatively low levels of pay-out from defined contribution schemes, they do not have much interest in saving for their old age through a pension fund.
	We have seen the result of the Government's policy at the margin reducing, to an important extent, the incentive on the citizen to accept their individual responsibility for providing for their old agewhat the Chancellor in an earlier age might have referred to as prudence. The effect of that has been the renationalisation of pension provision and a sharp move back towards seeing the statethe taxpayeras the primary provider of income in old age, rather than encouraging individual responsibility during our working lives.
	The key objectives of policy going forward must be to reverse the drift back into state dependency, to encourage independence and to encourage people to provide for their pension in their old age, and to protect to a better degree than the Government have yet shown themselves willing to domy hon. Friends on the Front Bench have demonstrated that we are willing to do thisthose whose interests have been sold down the river by the Brown mugging of the occupational pension scheme.

Wayne David: It is important to remember the context of the debate. It is undeniably true, and it is certainly constantly repeated by my constituents, that senior citizens are far better off than ever before. Support for them has been systematically increased by the Government. As we all know, the basic state pension has risen by more than the rate of inflation and a raft of new benefits has been introduced since 1997. Hon. Members will be aware of them. As well as measures on the basic state pension, there is the winter fuel payment of 200 for households with someone over 60 and 300 for households with someone over 80. Free prescriptions and free eyesight tests have been introduced for the over-60s, and the over-75s receive free television licences. As we know, the Pension Protection Fund has been introduced. It is an innovative scheme, the first of its kind in this country. We also have the financial assistance scheme and related measures announced in the Budget. There have been many other measures as well. All those important measures and others have created a favourable situation for elderly people in this country.
	Reference has been made to the dividend tax credit changes that were made in 1997. As has been pointed out time and again today, there was an emerging consensus that that was the way forward. In 1993, when Norman Lamont was Chancellor, he cut the credit from 25 per cent. to 20 per cent. He made numerous statements at the time, but I shall quote just one. In March 1993, he said that the dividend tax credit distorted the commercial decisions of British companies. I believe that that was true then, and remained true until the abolition of the credit.
	A range of economic commentators and professional economists also said that the whole system needed to be modernised, and that the tax credit was outdated and an impediment to investment. I shall quote just one of those commentators. In his widely read and acclaimed book The State We're In, Will Hutton said:
	If the tax treatment of dividends...was changed...then the incentives in the system would be redirected towards tomorrow's profits rather than extracting as much as possible today.
	It was no surprise when, in 1997, the Chancellor of the Exchequer in a new Labour Government announced that the tax credit would be removed. Not only was the action generally anticipated and not only did it represent the summation of a developing consensus that transcended political lines, but it was widely expected in the stock markets. The day after the 1997 Budget share prices increased by 0.45 per cent., and that was not a one-off: the markets continued to respond favourably for some time afterwards.
	We should consider not just the position of senior citizens from 1997 until the present day, but the particular circumstances inherited by the Labour Government in 1997. They may be difficult for us to imagine now. At that time there was still high unemployment, along with relatively high inflation, high interest rates and a large budget deficit. The need to achieve stability and do everything possible to encourage investment was widely accepted in the financial community, and that, I believe, was the rationale behind this and other measures introduced in 1997 and thereafter. Those other measures are also important. It is impossible and wrong to see this measure, which has attracted so much attention in this and earlier debates, in isolation from others introduced at the same time and subsequently. For instance, the Government introduced measures that reduced corporation tax, thus also reducing the burden on companies significantly. That was warmly welcomed at the time, and rightly so.
	The difficulties that arose were not connected, directly or indirectly, with the difficulties that have been attributed to the change in the tax credit. As has been pointed out frequently today, there were other reasons for those difficulties. The fall in the stock market and the dotcom collapse were obviously of tremendous importance, and the reduction of about 250 billion in the market value of occupational pension schemes between 1999 and 2002 was enormously significant. Moreover, as at least some Opposition Members have acknowledged, life expectancy has increased. The 12 years for which a 65-year-old man could expect to live in 1950 have now become 20 years, and it is only common sense to realise that such a profound change in demography will have a profound effect on occupational pensions.

Jim Cunningham: My hon. Friend may recall that certain companies took pension holidays. I know of one major company that took a 15-year pension holiday.

Wayne David: That is also a significant factor. During the 1980s and 1990s, despite rising liabilities, many firms decided to take so-called contribution holidays, which undoubtedly had a huge impact.

John Redwood: Does the hon. Gentleman not concede that a company could take a pension holiday only if the actuary signed a certificate saying that there was enough money in the fund to meet all foreseeable pension requirements?

Wayne David: I do not claim to be an expert, but I suggest that some of the responsibility lies with the actuaries. Certainly we should acknowledge that the fault lies not with the Government's decision in 1997, but with decisions made by individuals on subsequent occasions in complex circumstances. The main point is, however, that if we are looking for reasons for the difficulties that we have experienced, we should look beyond the ending of the dividend tax credit.

Judy Mallaber: Is it not strange that it apparently took the actuaries so long to start warning of the implications of longer life spans for pension schemes?

Wayne David: That is a valid point. While it is always possible to speak with the benefit of hindsight, it seems that the problems that arose at least partly as a result of increasing life expectancy were not identified by those who were supposed to have their fingers on the pulse, and they should look to themselves when these matters are discussed.

Rob Marris: It is not a question of hindsight. I was a personal injury lawyer at the time, and I used life expectancy tables to calculate lifetime loss of earnings. I saw new tables every year showing increased life expectancy, and I took that into account in my professional practice. Actuaries advising those in charge of pension schemes clearly did not.

Wayne David: That is an important point. My hon. Friend is clearly far better versed in such matters than I am. I think we should have another debate, here or elsewhere, where they can be examined in more detail.
	Those three factorsthe fall in the stock market, increasing life expectancy and firms' decisions to take contribution holidaysall contributed, in their different ways, to our current difficulties. Those difficulties are not due to the Government's decision in 1997, as was argued at least initially by Opposition Members today.

Mark Tami: Local authorities were mentioned earlier. Does my hon. Friend agree that it seems to have been Tory authorities that took the pension holidays that caused their employees the difficulties they are now experiencing?

Wayne David: My hon. Friend has identified a moot point. Opposition Members have gone very quiet, perhaps because there is quite a lot in what he has said. It is more than just a rumour or a suggestion; I believe that it may be based on hard fact, and I am sure that my hon. Friend's intervention was based on sound knowledge.
	Some commentators, for whatever reasonI suspect that it is more to do with politics than with economicsappear to have changed their position on this issue. The shadow Chancellor, the hon. Member for Tatton (Mr. Osborne), made a passing reference to Dr. Ros Altmann, although he did not mention her by name. The press have described her as being very critical of the 1997 decision, but I was interested to note that historically her view has been somewhat different. In evidence to a Select Committee back in March 2004, she made some very pertinent comments that were quite different from those attributed to her recently. Let me quote from the verbatim reports of that evidence session of March 2004. She clearly stated that the arguments that some had put forward to test the water were wrong because income was reduced by only about 0.9 per cent. She asserted that that was an insignificant amount. She said that the argument that some had put forward was
	simply trying to make a political point but is of negligible size in this debate in practice. Even if they still had the...relief, there would not have been enough in the funds to pay for pensions. I certainly do not want to be associated with any argument that says this problem was caused by the removal of this relief.

Philip Hammond: The hon. Gentleman might have been listening earlier when the right hon. Member for West Dunbartonshire (John McFall), who chairs the Treasury Committee, argued that the difference between a 0.3 per cent. annual charge and a 1.3 per cent. charge when accumulated over a lifetime would make a huge difference to the pension pot of ordinary working people. Is not the hon. Gentleman undoing that argument?

Wayne David: I am simply relying on expert objective opinion, rather than on political comment. Dr. Altmann's argument certainly seems to hold water with members of that Committee, and she certainly was convinced of it.

David Gauke: The hon. Gentleman praises the independent and expert advice of Dr. Ros Altmann. Will he therefore tomorrow support the amendments to the Pensions Bill, which are supported by Dr. Ros Altmann, a number of the hon. Gentleman's colleagues and Opposition Members?

Wayne David: The hon. Gentleman knows the answer to that, so he has asked a rhetorical question. I quoted Dr. Ros Altmann simply to highlight that commentators need a degree of consistency and that it is wrong to quote people's comments in isolation both historically and in terms of their wider contributions. In 2004 when some of the difficulties that we are alluding to were already becoming apparent, she was clear what the situation was.
	This is an important debate. I am pleased that it is taking place because, sadly, over the past week or so there has been an unprecedented degree of misrepresentation in the newspapers of this country and from many Opposition Members. As we have addressed the details in this debate, the reality has become clear. The Chancellor gave a tour de force in explaining why the situation that we are discussing came about.

Mark Tami: The Chancellor wiped the floor with his opponents.

Wayne David: I agree with my hon. Friend, and I hope that the newspapers accurately reflect that reality tomorrow morning, but I will not hold my breath.
	It is possible to say with honesty and integrity and with hand on heart that the right decision was made in the Budget of 1997. It was the right decision for investment. Investment in the subsequent 10 years has increased dramatically; that objective fact cannot be denied. Therefore, that decision was right for the long-term interests of this country.

Ian Taylor: Obviously, by praising the Chancellor's speech the hon. Member for Caerphilly (Mr. David) is applying to him late in life for a job, perhaps as his Parliamentary Private Secretary. I wonder whether he would have made that same speech so willingly in 1997, when the decisions we are discussing were being taken: would he have stressed the benefits of this change in advance corporation tax that the Chancellor had sprung on the House? It is my contention that at that time nobody knew what its full effect would be. The Chancellor certainly did not come clean about it in the Chamber. It is good that he is now belatedly being held to account, simply because we happen to have the Treasury evidence, which came out after 10 years. The Chancellor's remark that he welcomed the Freedom of Information Act 2000 was one of the most amusing comments that he has made in the Chamber, and I hope that it will be included in future dictionaries of quotations. He clung on to information that some of us had anticipated must have existed in the first placehe legally tried to hold it back until he went on a trip, to Afghanistannamely that he overrode the advice that he had been given and that he knew what the effect of his decision would be, although I suspect that he did not realise how bad it would be.
	There is a pensions crisis, although I accept it is not caused entirely by the particular tax change that is at the centre of our debateI shall come back to that point. There is a pensions crisis because people no longer have confidence in putting enough money aside for their retirement. Not only do they not feel that that is a justifiable saving, but they are unconvinced that the benefits of that saving will flow back to them when they have retired.

Stephen Hesford: I ask the hon. Gentleman to look back to 1990s. Because of Maxwell and pension mis-selling under his Government, people did not have confidence in the system then either, so what has changed if what he says is right?

Ian Taylor: It is clear what has changed. In 1997 the pensions industry was, according to objective observation, in a good state. Of course, the Maxwell affair raised questions about what might happen, but people did not think that that was a generic problem. However, since 1997 60,000-plus occupational pension schemes have closed, final salary schemes are now regarded as too risky, and some people have lost money because of failed schemes or failed companies that fall outside the recently introduced lifeboatwe will return to that when we address the Pensions Bill tomorrow and the excellent proposals that the shadow pensions Secretary and his colleagues will put forward.
	The constituents of the hon. Member for Wirral, West (Stephen Hesford) must be raising concerns. It would be very strange if they were not.  [Interruption.] Well, the hon. Gentleman must live in an extremely affluent and contented constituency, but in the dark reaches of Surrey the natives are restless.

Stephen Hesford: I am pleased to be able to tell the hon. Gentleman that I do live in a reasonably affluent and contented constituency.

Ian Taylor: I am delighted that the hon. Gentleman can afford to do so, but some of my constituents have been affected by failed schemes. Arcolectric has a failed scheme. Mayflower is based in Guildford, but its failed scheme also affects constituents of mine. Those people are extremely concerned about their futures, and I hope that the Government will tomorrow adopt the Opposition's amendment on this issue.
	However, that is not the only issue that I wish to address. There is a pensions crisis and there is a savings crisis and we must do something about that. How we address those problems is perhaps not a matter for this debate, but I hope that something constructive will come out of it, because I am extremely concerned as the long-term prospect is that the state will not be able to provide sufficient for people in their retirement. People will live longer. Therefore, they will have costs to meet, not least in terms of nursing home care. In those circumstances, we desperately need there to be a thriving private sector pensions industry.
	In 1997, it was clearly being rumoured that the Government were thinking of making changes. The hon. Member for Coventry, North-West (Mr. Robinson) made an open speech in which he was also affablealthough he did not perhaps always mean to be soand in which he revealed the truth: secret work was going on at that time to work out how to get more money from the taxpayer without them necessarily realising it. That is effectively what he said in his book, and it is what he has said in the Chamber today. There is nothing wrong with that in the sense that Governments occasionally have to consider how to raise tax revenues. All Governments have a responsibility to do that. It is always betterin the long term, it is better for the reputation of the Governmentif they do so overtly rather than covertly, but the exercise undertaken by the hon. Member for Coventry, North-West was clearly covert. Again, I do not necessarily criticise him for being covert before a general election. Political parties do not always put all their policies in the shop window. What was damaging was that the introduction in the Budget was covert, glossed over and spun so that nobody understood its implications. However, the advice given to the Chancellor from several different quarters suggested what the effect might be.

Justine Greening: Does my hon. Friend agree that the biggest problem was that the covert change took the choice away from individuals saving through occupational or private pensions, because they did not realise that they needed to decide whether to increase their contributions? They were left thinking that there had been no change and that therefore they did not need to change their provision. They were wrong.

Ian Taylor: I welcome that point because it underlines the concerns that I have about how we get people to realise the full extent of their personal liabilities for their own futures. Anything that reduces their awareness of what they need to do is of considerable concern.
	When the Chancellor introduced his 1997 Budget, he was aware that some of us were already talking about the implications of what might happen. My right hon. Friend the Member for Charnwood (Mr. Dorrell) was involved in the previous decisions and I was aware that we had rejected a change of the sort that the Chancellor and the hon. Member for Coventry, North-West were considering. Therefore, the first time that the Prime Minister's came to the Dispatch Box to answer questions, in May 1997, I asked him whether he would compensate pensioners for any loss that might arise from the rumoured changes in tax, including a windfall tax and advance corporation tax. Not surprisingly, I got the brush-off with an evasive reply. The Prime Minister merely commented that a windfall tax would not damage pensioners and did not comment on advance corporation tax. He also took some sideswipes at my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) and the pension proposals and reforms that we had put forward before the 1997 election. That attack was disingenuous, because at least we had put our proposals forward for public consultation. They were misrepresented by the incoming Labour Government, but I strongly suspectas my right hon. Friend pointed out in his speech todaythat they subsequently regretted having written off those proposals, which meant that they could not grasp the pension problem for some years.
	Lord Simon of Highbury, then a Minister, also apparently made it clear that the changes would be damaging. He also said that the proposed tax change was a particular concern, given its impact on investment in the UK and pension provision. The Chancellor claimed that he was given the opposite advice todaythat the decision would help investment. Those issues have been addressed by colleagues in previous speeches, so I shall not go over them.
	The Chancellor was aware of the implications, but he did not make them clear in his Budget speech. I am not sure that he fully understood what the implications were. Local authorities have been mentioned, and I checked with my local authority, Surrey county council, today. It said that at the 1998 valuation the deficit on the pension fund was 243 million, but at the 2004 valuationthe latest official valuationthe deficit had grown to 517 million, despite the council making additional contributions of 200 million to reduce the deficit over the period. That prudently run county council has been hit, with the result that council tax payers are paying more. The impact of the measure in 1997 was not only felt by pensioners, but caused collateral damage. Did the Government admit that? Did the Chancellor come to the House and say Well, I think that this is a necessary measure because we need to raise more money. I have been advised by my Ministerthe hon. Member for Coventry, North-Westthat we have to raise 5 billion and this is how we'll do it. It will of course affect pensioners, but in the long term we think that the pension industry will survive, and of course it will have a knock-on effect on council tax payers, but they must play their part. He did not say any of that.
	The accusation against the Chancellor is not that he thought through some measures and happened to come up with some that were tax-raising. That is the job of the Chancellor. The accusation is that he did that in a clandestine, covert way and has never apologised to the people who have been affected. Apologies in the Chamber are always highly regarded and respected by colleagues. The House listens sympathetically if a Member comes to the Chamber and says, Well, I didn't understand the full implications of what I have been doing. There were merits to my decision and I took good advice, but the effect has been worse than I expected. But even today, when the Chancellor's cover has been blown, we did not hear a word of apology. There was lots of talk about other measures that he had introduced to try to protect from flanking cover the problems that he had caused by that decision, some of which have been beneficial to pensioners, but that does not alleviate the damage to confidence in the pensions industry.
	We did not get an apology. Instead, we got bluster, fight-back and statistics that did not make comparable sense with the time scales involved. Interestingly, few of the figures came from after 2001. Heaven forfend that I should have to read the Chancellor's speech in  Hansard tomorrow, but I think that that is true. That is interesting, because one of the arguments that he has used is that the stock market went up. It is rare that Chancellors claim credit for stock market movements, and he certainly would not wish to claim credit for the fall in the stock market, which logically he should. If he is behind all movements, the fall must also have had something to do with him.
	Lord Turnbull said that the Chancellor was behaving like Macavity the cat, and my hon. Friend the shadow Chancellor referred to that. That excellent poem also says:
	 But when a crime's discovered, then Macavity's not there! 
	Well, the crime has been discovered. The Chancellor was there, but he did not come to the House and own up. That is the accusation that we are making.

Judy Mallaber: No crime has been committed. That is a ridiculous way of putting things. The statements and analysis given by the Chancellor and others have made the position clear, and they contested very strongly the points made by the Opposition.
	It was unclear from the exchanges between the right hon. Member for Charnwood (Mr. Dorrell) and the Economic Secretary what the advice and recommendations were on the relationship between investment and dividend tax relief, and it will be fascinating to read the papers when they are released. I get the feeling that a range of advice was given by the Treasury and advisers from other Departments. It is like what people say about economistsget three economists in a room and one ends up with four opinions. The debate on the advice reminds me of that saying.
	We all know what the debate is actually about. I do not have the polemical flair of my hon. Friend the Member for Birmingham, Erdington (Mr. Simon), who was very up front on this issue, but the debate todaycertainly for those who initiated ithas been about trying to denigrate the economic record of the Chancellor, which the Opposition have not previously been able to challenge seriously. He has been able to see off one shadow Chancellor after another because of the excellent performance of the British economy under his stewardship.
	We have had the longest sustained period of economic growth, with 2 million more people in work and higher incomes for the British people. The unspoken element of this debate is that the Tories want to denigrate the Government's record because their attack has moved from the Prime Minister to the Chancellor ahead of the leadership election. They are determined to damage the Chancellor, regardless of the seriousness and importance of the issues relating to pensions.

Justine Greening: The constituents who came to my surgery this week to raise their concerns about pensions and the Chancellor's smash-and-grab tax raid believe that those are live issues for everyone outside the Chamber. The hon. Lady dismisses their concerns and pretends that we are holding this debate only to pin something on the Chancellor, but that is untrue.

Judy Mallaber: The problem is serious and we need to have a proper discussion about the consensus that we want to build in respect of pensions in the future. However, the way in which the debate has been initiated means that it cannot offer a serious representation of what has happened. All hon. Members know that constituents are worried about their pensions and livelihoods, both now and in the future. No one denies that, but that is not the substance of the debate. Some serious contributions have been made, but there has been little attempt to give a serious representation of what has happened, and why.
	The debate is an easy hit for the Opposition. Few people understand the complexities of pensions or the workings of the stock market. Not many are familiar with dividend distribution and the nature of investment, the implications of demographic change resulting from rising life expectancy, or the changes in accountancy laws. The issues are complex, and it is easy to claim that a smash-and-grab raid has been carried out and to say, The Chancellor stole your pension. That is the soundbite, but it is not an accurate or sensible reflection of what has happened. The truth is very different.
	When we look back at the relevant documents, I shall be interested to see what they have to say about the relationship between the abolition of dividend tax credit and investment. It has been claimed that the aim was merely to raise money, and the right hon. and learned Member for Rushcliffe (Mr. Clarke) said that the money was to be used for the Government's employment programmes. As I understand it

Stephen Dorrell: The hon. Member for Coventry, North-West (Mr. Robinson) said that.

Judy Mallaber: I have not read the book that everyone is quoting as though it was the new Bible. I shall have to get a copy.
	The windfall tax covered the amount needed for the Government's new deala programme which, along with other measures, has cut significantly unemployment in my constituency. It has also enabled us to spend less on funding unemployment, and to have more money for investment in public services.

Stephen Dorrell: The hon. Lady does not need to read the book. The hon. Member for Coventry, North-West was in the Chamber earlier, and he made it crystal clear that the change to taxation of pension fund dividends was motivated by a need to raise revenue.

Judy Mallaber: I am sure that my hon. Friends on the Front Bench will respond to that when they reply to the debate, but my understanding is that the change was made to assist in investmentsomething that I, as a member of the Trade and Industry Committee, consider to be very important.
	However, if it was such a bad thing to remove the dividend tax credit, why did the present Opposition cut it five times when they were in government? I return to a question that I asked earlier. Lord Lamont was Chancellor in 1993: did his special adviser at the time support his statement that dividend tax credit distorted the commercial decisions of British companies? The shadow Chancellor refused to answer. He merely resorted to an easy jibe, claiming that I was asking a planted question. That made me wonder why I bothered to stay up late reading so many articles and newspaper commentariesmany of which blamed our current pensions difficulties on a variety of different factors.
	My right hon. Friend the Chancellor said that dividend tax relief halved under the Conservatives, so we are entitled to ask whether the right hon. Member for Witney (Mr. Cameron) supported the argument that there would be an impact on investment decisions.
	I turn now to the article by Stephen Yeo that has been quoted before. I do not know the extent of his relationship with the Conservative party, as I do not share the great interest exhibited by some of my hon. Friends in such details. However, Stephen Yeo is a partner at Watson Wyatt pensions consultants, and he has said that
	scrapping tax relief was not behind funding problems.
	He added:
	I don't think it is even in the top three reasons.
	I understand that Opposition Members respect Mr. Yeo and listen to what he says, but he is not the only commentator who does not consider that scrapping dividend tax relief posed serious difficulties for the viability of pension funds. Most of the money gained from cutting dividend tax relief was returned to companies through changes such as the cut of 2p in the pound in corporation tax. The aim was to remove the bias against investment, and to encourage companies to make decisions about future investment based on commercial rather than tax considerations.
	We are forced to return to the question of what the present Government inherited. That is quite nice, because we are usually told that far too much time has passed to allow us to talk about what happened under the previous Conservative Government. We are supposed to have moved on from all that but the Opposition have given us the opportunity to return to such questions, as this debate takes us back to the circumstances of 1997.
	At that time, the UK was suffering from historic under-investment. For every 100 invested here, Germany invested more than 140, the US and France 150, and Japan more than 160. The various measures taken by this Labour Government have meant that we have had continuous growth since 1997. We have managed to cut the historic cost of unemployment by getting people into work and creating 2 million more jobs.

Brooks Newmark: The hon. Lady has repeated what the Chancellor has saidthat part of the motivation was to increase investment. However, what evidence is there that investment has increased? As far as I can see, the facts suggest that investment as a percentage of gross domestic product is at an historic low.

Judy Mallaber: I advise the hon. Gentleman to look at the record of economic growth and rising employment

Brooks Newmark: I was talking about investment.

Judy Mallaber: The economy is far healthier than it was. The Opposition seem to want to denigrate the economic success that has been achieved. They cannot say that there has been no investment: in my constituency, companies have been able to invest and to create new jobs. Even Conservative party advisers such as Stephen Yeo do not say that the dividend tax cut was responsible for what has happened with pensions.

Brooks Newmark: Will the hon. Lady give way?

Judy Mallaber: No, as my time is running out.
	The suggestion is that the abolition of dividend tax relief was the reason for the present serious problems with pension funds. However, no reference has yet been made in the debate to the TUC, which represents many of those who have suffered as a result of what has happened to pension schemes. If the proposition behind the debate was correct, I do not believe that the TUC would say the following:
	Neither employers nor opposition politicians should be allowed to get away with blaming Gordon Brown for cuts in occupational pension schemes. When the tax rules were changed, pension funds were generally in surplus. Many companies had got used to long contributions holidays, and with typical UK short-termism had no plans for restarting contributions. Many companies used pension surpluses to make people redundant through early retirement.
	But when reality returned and employers started facing bills for their pension schemes once again, the retreat from quality schemes began. Stock market pressures and longer life expectancies have caused far more difficulties than the tax change.
	Most serious commentators have highlighted three factors behind the development of the problems with pensions. First, employers took pension holidays when the going was good in the 1980s and 1990s, and they did not begin to contribute again when things started to go pear-shaped. Secondly, firms rushed to get involved in the dotcom bubble, which ended with the stock market fall of 2000. According to the Pensions Commission, in the 1980s and 1990s companies should have been investing, not cutting their contributions. As was said in earlier exchanges, they should have been looking at factors such as the increase in life expectancy and realised that more money, not less, needed to be put into pension schemes. I hope that such issues will be discussed in a more serious debate on pensions tomorrow when we consider the Pensions Bill.
	It would appear that actuaries suddenly woke up and realised the cost to pension funds of increasing life expectancy. They started getting worried and demanding that each year any potential liabilities should be brought forward. I am not an accountant or an actuary, but other contributors will probably come in and make more points about the impact of that in terms of decreasing confidence in pensions.
	It is hypocritical of the Conservatives to accuse my right hon. Friend the Chancellor when they themselves were responsible in considerable part for creating the conditions in which contribution holidays were taken by companies. My right hon. Friend the Member for West Dunbartonshire (John McFall), the Chair of the Treasury Committee, quoted Adair Turner's report, which cited the changes introduced by Tory Chancellor Nigel Lawson in the Finance Act 1986, which forced companies to take contribution holidays. It said:
	indeed not only did contributions fall but they were required to fall by deliberate government policy ... the Finance Act of 1986 ... required pension funds to identify whether ... they had a surplus of 5 per cent. or more, and to take action to remove the surplus within five years, or else lose some part of their tax exempt status.
	So the Conservative party cannot deny its responsibility for what was clearly an important factor.
	I am proud of a number of things that we have done to assist with pensions. I am proud of the number of pensioners in my constituency who have been taken out of poverty. I am proud that pensioner households will be 1,500 better off in 2007-08 as a result of the way in which the tax and benefits system has developed. I am proud that the average household will be 2,200 better off and that the 2007 Budget will lift a further 60,000 pensioners out of paying tax. I am pleased that we have introduced the Pension Protection Fund and that extra money has been announced for it in the Budget.
	A lot of things have been put forward by the Conservative Opposition that have not been based on a serious analysis. My concern is that we should return to having a serious debate. I agree absolutely with the hon. Member for Putney (Justine Greening) that these are serious issues. None of us would undermine that assertion. I do not think that the to and fro of political polemics, in which I now find myself engaging as well, necessarily helps us take those arguments forward. These are serious issues.

Michael Weir: Will the hon. Lady give way?

Judy Mallaber: I am coming to the end of my time, if the hon. Gentleman does not mind. We need to look at issues such as increasing take-up of pensioners' entitlement. I applaud the work of welfare rights teams and other organisations in my constituency to increase benefits take-up. We need to look at investment decisions and the effects that they have.
	We desperately need a consensus on the future of pensions. I thought and hoped that that was the direction in which we were going, so I have not found today a helpful diversion. We need to look at the future of our pensions system, which was created in conditions very different from today's. Demographic changes have taken place since them. In the past we had different family and working patterns. We were not dealing with the problems of carers, for example, which I talked about in the Second Reading debate on the Pensions Bill. I hope that we can return to a serious debate on those issues, which are complex and difficult, and that we will get away from the back-biting and polemics and move seriously towards the consensus on our future pensions system that we so desperately need.

John Redwood: I am a company director and the trustee of a pension fund, and I have put that in the Register of Members' Interests.
	Before I came into the House I was involved with the direction of investments for a wide range of pension funds and I have in other capacities kept in touch with the pension world. In all my adult life, I have never known the occupational pension movement to be as weak as it has been from 2002 until today. We need to understand why it is weak and the origins of the problem and we need to look carefully at the Chancellor's defence of his actions.
	The Chancellor and the Economic Secretary to the Treasury were at their cleverest today as they sought to find a contortion of an argument to get themselves off the serious charge made by my hon. Friends on the Front Bench and othersthat one of the main causes of the disarray in pension funds has been the removal of about 5,000 million a year of income by the cancellation of the tax credit and the advance corporation tax system that was in operation before this Government came to power.
	The Chancellor's main defence seemed to be that it was good for companies to have that money taken away, that it meant that the companies would be able to invest more in themselves and that this would create extra value. One of the most important trustee rules in most pension funds is that they cannot invest in the company concerned, because that would increase the risk. The whole idea of a pension fund is that it should be separate from the company itself. However, if we take the Chancellor's argument more generously, we could suppose that he was looking at the whole population of companies and he thought that, had there been this shift from distribution to investment, all companies would have done better. Of course, the truth is that that shift did not occur. We have heard good evidence already today that the payout ratio of profits going in dividends actually rose despite the change in the tax system.
	So the Chancellor is left arguing the rather ludicrous proposition that if you take a fifth of someone's income away they will be better for it. I asked the Chancellor of the Exchequer the terribly simple questionhe is an intelligent manwhether, if I took a fifth of his income away, he would be worse off or better off .

Brooks Newmark: He did not answer.

John Redwood: He did answer. My hon. Friend is quite wrong. He answered from a sedentary position and he said no, he would not be worse off. I have a simple suggestion for the Labour Front Bench. If it is the case in Labour economics that you are not worse off if you take a fifth of your salary away, will they all take a fifth of their salary and give it to the pensioners who do not have enough pension as a result of the policies that the Labour Government have been following? They would find it useful, and obviously the Chancellor does not think that it is very useful to himself.
	The Chancellor said that it would not make him worse off because he knew what was coming next. The second part of my question was, if taking a fifth of his income away would make the Chancellor worse off, would not taking a fifth of pension funds' dividend income away make them worse off? The Chancellor is left trying to argue that it does not make them worse off if the Government take that money away.
	Perhaps the Chancellor does not understand the full power of compound arithmetic. A pension fund is a long-term fund. It may have a life of 50 or 100 years; it depends how long the company goes on making those promises and how long the members and pensioners live before the fund has finished its task. Every year, all those pension funds are receiving 5 billion lessprobably more than that now; the Chancellor will not tell us the accurate figuresowing to the cancellation of the tax credit. It is not just that the pension funds are short of 5 billion a year. They would invest that 5 billion. Given that equities and property have been doing well in most of the years I have been involved with markets, after, say, seven years the 5 billion would be 10 billion because the 5 billion would have increased by 10 per cent. per annum. The funds would have 10 billion more just from one year's dividend tax credit that has been forgone. Then the next year another 5 billion has gone missing; in 10 years the amount forgone would be perhaps worth treble. So a large amount of money has clearly been forgone by the pension funds.
	We then come to the Chancellor's second very clever argument. He says, Ah, yes, but between 1997 when the money began to be taken away and 2000, stock markets went up. Yes, that is quite true, Chancellor of the Exchequer. So he says, Therefore, no damage was done because what pension funds lost on the dividend tax credit they made up on the share gains. This is where stopping the clock at 2000 is an important part of the trick argument. From 2000 onwards, there was a sharp crash in the market.
	If the Chancellor were here he would say, Yes, but markets around the world fell so it was not just a British problem and it was not a result of my actions. I have looked at the extent of the market falls in Britain and around the world. The evidence is clear that the British stock market fell by considerably more than the New York, Frankfurt and Paris stock markets. All the major markets performed rather better than the UK market. We can make a strong case that the extra decline in the London market reflected the economic policy of Her Majesty's Government, especially the taxation policy.
	I will make a concession. It was not just the removal of the tax credit; another important tax change had quite a big impact on share values and that was the decision to take 22 billion out of the leading sector at the timethe telecoms industryin the form of the auction tax so that companies could carry on trading. That had a huge impact on the share values of Vodafone and BT, which were the leading investments in most pension funds at the time. There was a double effect. The pensions taxthe biggest itemand the telephone tax completely smashed the equity valuations in typical UK pension funds.

Stephen Hesford: Although I do not accept that there is any connection between what the Chancellor did and the so-called drop in the equity market, if the thesis of the right hon. Member for Wokingham (Mr. Redwood) was true and if that situation is continuingbecause there has been no real change in the position over the past six yearsthe stock market would not have recovered to more than it was when it crashed. That would not have happened if the right hon. Gentleman's thesis was true.

John Redwood: I am afraid that the hon. Gentleman does not understand stock markets. On an earnings multiple valuation, the market has not actually risen at all in recent years; all that has happened is that earnings have gone up a bit and the stock market has kept pace with that rise. In real terms, the stock market is well below where it was at the market peak and it has not yet moved on to a higher valuation basis, as it had done before the full impact of the changes was discounted by the market.
	I am not saying that the entire market drop was the direct fault of the tax changes. Quite a bit of it was a worldwide phenomenon; liquidity was withdrawn by central markets around the world, so world markets dropped. The extra fall in the United Kingdom is clearly the result of tax changes in the UK, so the Chancellor's argument for getting out of jail tonightthat because share prices rose for a couple of years all was wellhas to be looked at in the light of the fact that what happened next was that share prices fell. Clearly, if 5 billion is taken out of companies' income, their shares will be worth much less.
	I did the sum for the Government shortly after the first Budget. In the Budget debate, I said from the Dispatch Box how damaging the proposals would be. I then made a back of the envelope calculation that they would cost 100 billion. It was an easy sum to do, because in those days the markets valued companies on 20 times earnings. In effect, 5 billion was being taken from company earnings, so multiplying that by 20 meant that there would be a 100 billion capital hit. In practice, the excess drop in the London stock market was more than 100 billion compared with other world stock markets, but that reflects the telecoms tax and other adverse factors that were then discounted by stock markets.
	The Secretary of State for Work and Pensions is shaking his head in disagreement; in the wind-ups it will be interesting to hear his argument why taking 5 billion a year from company income does not have a negative impact on values and why one should not calculate how much more the London stock market fell than other stock markets.

Brooks Newmark: The point made by the hon. Member for Amber Valley (Judy Mallaber), which was the Chancellor's argument, too, was that the measure would increase investments. However, the reality is that investment, especially as a percentage of gross domestic product, went down, which in itself leads the Chancellor's thesis to fall flat on its face.

John Redwood: My hon. Friend makes another extremely good point. Other colleagues have also referred to it. On the Labour Government's watch, 1 million manufacturing jobs have gone and a large amount of industry has transhipped to more clement locations abroad, with better tax and regulatory structures and a more favourable environment for business. The hon. Member for Amber Valley (Judy Mallaber) lives in a dream world when she says, But we all know it's so wonderful. Tell that to the 5 million people on benefits who cannot get a job. Tell that to the million people who lost manufacturing jobs in recent years. Tell that to the hundreds of thousands of people who no longer have access to final salary schemes or whose promises from such schemes will not be honoured in full, or who are nervous because they fear that those promises may not be honoured.
	Labour Membersalthough not normally the Chancellor, I am pleased to sayseem to think that the origins of the problem lie in the so-called pension holidays. It is true that in the 1990s a number of companies either cut their contributions or ceased to make them, which was sometimes beneficial for employees, because some of the schemes had employee and employer contributions. However, Labour Members really must understand how pension funds operate in this country. Each fund has to have not only an independent trustee board, but a consulting actuary who has to produce a calculation to tell the trustee board and the employing company how much money has to go into the scheme to ensure that pensions can be paid in the future. All the companies that cut, or removed, their contributions had signed actuarial certificates stating that they need not put in more money; indeed, they were often told that they could not put in more money.
	The rules are still the same. There are limits on how much anybody can put into a pension scheme, because it is a tax shelter. The rules are clear: a pension scheme cannot be overfunded beyond a certain amount, because it would be an unreasonable use of the tax relief, and that is right. The Conservative Government were right to impose a limit on the tax relief for funds and the Labour Government were right to continue with it. However, it is quite wrong to say that companies are to blame for a shortfall that emerged 10 years later; they had super-solvent funds at the time and the rules and regulations and tax requirements meant that they could not put more money into the schemes. Indeed, it would have been foolish of them to have done so.

Lynda Waltho: The Pensions Commission concluded that although employers should have been increasing contributions during the 1980s and 1990s, in fact they reduced them. Can the right hon. Gentleman explain that conclusion?

John Redwood: It is wrong. The funds all took sensible advice when they were solvent, which was why they were allowed to stop making contributions. Had nothing else changed they would have carried on being able to meet their promises. At a certain point they would have resumed making contributions, depending on the balance between liabilities and assets in the valuations.

Stephen Hesford: But that is precisely the Chancellor's defence. If conditions had remained the same as they were when he made his decision, we would not be having this debate. What happened was that the conditions changed much later on. It was the changed conditions that made pensions go down, not the Chancellor's decision.

John Redwood: Of course conditions changed; the main change was the tax increases that did all the damage. Subsequently, actuaries decided that they wanted to make more provision for longevity, which needed to be paid for.
	There is a certain symmetry in the figures. My 100 billion guesstimatea rough guess based on a simple calculationhas been turned into a much firmer figure by people who have made sophisticated calculations. They are trained actuariesunlike meand they say that 100 billion is not a bad estimate of the damage done by the tax changes. The longevity problem created a potential extra deficit, which is being taken care of by the increased contributions. The symmetry is interesting because the cumulative aggregate deficits are about 75 billionthey were about 100 billion but the stock market has performed better recently, which has helpedwhich is similar to the figure that many actuaries say would be the discounted cost of forgoing the 5 billion or more of income in the form of the tax credit that is being removed year after year.
	One of the things that Government could do to help the debate is to provide proper information so that we can calculate the figures more accurately. I have often asked them to give me the run of numbers for the imputation tax credits forgone over the past 10 years. I believe that the 5 billion included charity funds, so perhaps in the early days the figure was not 5 billion for pension funds overall, but I suspect that it is rather more now because the distribution rate has gone up, as have profits and dividends, so one would expect the credit to be worth more. I assume that is why the Government will not give me the figures, because if the amount were lower they would want people to know. However, it would be good if they published the run of figures so that we can run proper actuarial figures again, based on the actual figures that the Government can work out from the state of the funds and the dividend incomes flowing into them.
	Funds today have less equity dividend flowing into them proportionately than 10 years ago when this dreadful business started, because many funds have been forced by regulatory, actuarial and other pressures to switch quite a lot of money from equities into bonds, so the figures would need adjusting for that factor, too. When the crisis hit, UK pension funds, quite reasonably, had two thirds or more of their assets in equities. They were growing assets, which, taking the normal run of years, outperformed bonds, but because of the crisis pension funds have now been talked into a much higher bond ratio, at a time when bonds are expensive and yields are low, partly due to the bubble effect of the regulatory pension fund crisis.
	We could now be seeing the beginnings of another crisis in pension funds, because they can no longer make as much on investment gain to get out of trouble as they could 10 years ago before so many of them were switched into bonds. Why are they being switched into bonds? That is happening because the actuarial profession is becoming very cautious and primarily, of course, because so many of the funds are now closed funds. There is a case for saying that we need to be more cautious with a closed fund than with a growing or open fund.
	It is a tragedy that many of our young people will now have no access to final salary schemesand it was an avoidable tragedy. It means that the remaining population of pension funds are being run in a much more defensive and negative way. That means, paradoxically, that they have a bigger problem with meeting future liabilities, because asset growth is less and the calculation of assets versus liabilities is even more unfavourable.
	In today's debate, we have heard estimates of the deficit ranging from 75 billion to 550 billion. That shows that we are dealing with an imprecise science and also tells us that there are different bases for working out the figures. The 550 billion figure was based on the assumption that all the funds are now going to be wound up and annuities purchased through insurance companies based on long bonds. That shows what a difference there is between trusting a bond investment and the 75 billion to 100 billion deficit figure that is based on the assumption that healthy funds can continue and will continue to grow along with growing investments.
	Of course, investment gain is very important in these funds, but it is quite ridiculous of Government Members to try and argue that having 5 billion or so less a year to invest does no harm whatever to investment funds. They need more money and the main reason for that is that the Government took the money away.

Lynda Waltho: I am pleased to contribute to tonight's debate, not least to put some facts and figures on the record that have been ignored so far.
	I am glad that my hon. Friend the Member for Caerphilly (Mr. David) mentioned some of the positive effects that the Government have had on the lives of pensioners since coming to power in 1997, but he missed out a few that deserve a mentionnot least the fact that the basic state pension is now guaranteed to rise in line with prices or 2.5 per cent., whichever is the higher, as we move to increase that pension in line with earnings. Pension credit ensures that no pensioner need live on less than 119 a week from 2007-08 and we have also introduced stakeholder pensions and the Pension Protection Fund, not to mention the financial assistance scheme.
	I apologise for referring to my notes, but there are some figures that I really want to get right. As the Chancellor noted in his opening speech, many of the measures that we have implemented were opposed by Conservative Members, who called today's debate. In 1997 when we came to power, it was necessary to address historic under-investment and short-termism. The main rate of corporation tax was too high, pension funds had the incentive of encouraging companies to pay out large dividends, which inevitably had an impact on investment decisions. Dividend tax credits alongside corporation tax disadvantaged British-based international companies and an increasing amount of dividend tax creditabout 1.8 billionwas being paid to shareholders other than pension funds.
	Our package of reforms included a reduction in the main corporation tax from 33 per cent. to 31 per cent., as well as the removal of the dividend tax credit, a reduction in the small companies' rate of corporation tax and increased incentives for investment, including increased capital allowances. Those changes encouraged long-termism in the British economy. Abolishing payable tax credits allowed companies to base their investment decisions more on long-term commercial requirements and less on the need to pay high dividends.
	Our reforms encouraged higher levels of investment, helping to account for a rise in business investment. In fact, the figures show that foreign direct investment has risen threefold since 1997 and is now at its highest level since records began. In the quarter after the summer 1997 Budget, business investment grew by 1.75 per cent., then by 6.1 per cent., and then by 7.1 per cent. So between the 1997 and the 1998 Budget, business investment rose by 16 per cent. Since 1997, total business investment has risen by 60 per cent., compared with 34 per cent. in the previous decade. Whole economy investment has risen in every year since 1997a decade of rising investment. In the previous 18 years, investment growth was negative for a quarter of that period.
	The purpose of the changes was, of course, to make companies more profitable and to enable them, by being more profitable, to resume higher contributions to pension funds and to pay higher dividends. Companies were more profitable after tax, as rates of return rose from 13.5 per cent. in 1996 to 15.1 per cent. last yearhigher than ever before. Companies could afford to pay more in pension contributions, which were up 16 per cent. by 1999 and almost three times as much by 2006.
	Funds enjoyed high dividends despite the dividend tax credit change between 1996 and 1999, and even the dividend income of pension funds was higher in 1999 than it was in 1996. Companies did put more money into the pension fund. By 1992, total contributions, less refund, totalled 13.7 billionan increase of 2 billion compared with 1996. Before Opposition Members jump to their feet to say, Give the woman a job or whatever, I want to make it clear that I am very happy being a Back-Bench Member representing Stourbridge and a PPS in the Northern Ireland Officeand I do not want another job.

Justine Greening: The hon. Lady mentioned that, on coming to office, the Chancellor reduced the small companies rate, but in the last Budget he increased it. Is she as concerned as I am that that, combined with the personal accounting legislation that will make companies match contributions, will produce a total burden that could be difficult for small companies to manage?

Lynda Waltho: I do not share the hon. Lady's concerns because I believe that her analysis is incorrect. We cannot have it both ways. Either we analyse what happened in 1997 or compare it with how successful our economy is now.
	Pension fund assets rose by 270 billion between 1996 and 1999. Dividends, employer contributions, employees contributions and total income all rose in 1997 and all were higher in 1999 than in 1996. It was disingenuous of the shadow Chancellor not to acknowledge that, or the fact that pensions were hit by a series of problems after 2000not least the stock market fall that year, which accounted for a reduction of 250 billion in the market value of occupational pension scheme assets between 1999 and 2002.
	Increasing life expectancy, referred to by my hon. Friend the Member for Amber Valley (Judy Mallaber), should also be mentioned. Rising life expectancy obviously means that pensions are in payment for more years, thus increasing a fund's liabilities. Many firms made the decision during the 1980s and 90s, despite rising liabilities, to take contribution holidaysthey were encouraged to do soin the belief that a bullish equity market was a long-term trend. Many funds continued with those holidays after 1997. Indeed, as I mentioned earlier, the Pensions Commission concluded that employers should have increased contributions in the 1980s and 90s, but in fact reduced them.
	I think that the most interesting thing we have heard this afternoon is that, despite having called this debate, the Opposition are not committed to reversing the changes. Time and again, when given the opportunity, they have declined to say they are going to reverse them. Given their record on pensions, even if they said they would, I am not sure whether anyone would believe them. After all, the Opposition have very little credibility on pensions. They presided over the pensions mis-selling scandal, which caused misery to millions, destroyed confidence and seriously damaged the pensions industry in the process.
	The Opposition also presided over a growing gap between poor and better-off pensioners. From 1979 to 1997, the incomes of the best-off pensioners rose by 80 per cent., whereas the incomes of the poorest fifth grew by only 30 per cent. They left 2 million pensioners living in poverty and expected a pensioner in 1997 to live on just 68 a week. Many pensioners could not afford to keep warm in winter, and we all remember the phrase heat or eat.
	Just as the Opposition's record means that they have no credibility, their values mean that they cannot really come up with a coherent plan for their future, or our future for that matter. As a matter of ideology, based on their values, they cannot be trusted to do what is needed to deliver social justice and opportunity. They say they want to tackle poverty and do more for pensioners, but they condemn the increases in public spending needed to do that and call them financially irresponsible. Their so-called proceeds of growth rule commits them to cutting public spending every single year. Their leader himself said:
	As that money comes in let's share that between additional public spending and reductions in taxes. That is a dramatic difference. It would be dramatically different after five years of a Conservative Government.
	If that rule were in place now, spending would be 21 billion lower than the Government plan, and lower still in the future. It is impossible to make those savings without hitting pensioners hard. For all the Opposition's supposed outrage on behalf our pensioners, there is no suggestion that they are going to restore the dividend tax creditlet alone match our spending on pensionsyet they have been allowed to get away with their own policy vacuum.
	The closure of occupational schemes was not caused by the decision to cut dividend tax credit. However, we all have constituents who have been affected. That is why I would like to welcome the measures announced by the Chancellor in last month's Budget and referred to earlier. The Chancellor announced that the Government will greatly increase the money available to the financial assistance scheme, to 8 billion in cash terms. The increase will ensure that pensions of all eligible members of affected pension schemes are topped up to a level broadly equivalent to 80 per cent. of their core pension rights accrued in their scheme. The cap on maximum assistance was increased from 12,000 to 26,000. As a result, the number of people helped will be trebled. The Government are also committed to keeping the financial assistance scheme under regular review. I am pleased that more help is going to be provided for people who have lost their occupational pension scheme as part of their company's insolvency.
	That action shows that the Government have listened to the arguments of campaigners and to Members on both sides of the House, and have complied with the order in the recent High Court judgment, and that is another reason why pensionerswhen looking at the policies put forward by the Government and the Oppositionwill see through the crocodile tears and, despite the Opposition's posturing on this issue, will see that they have no plans to reinstate the dividend tax credit, nor to support our measures that have made a positive contribution to pensioners' lives over the last 10 years.

Justine Greening: I am pleased to be able to make a contribution to the debate today. I am also aware that many Members still want to make their contributions, so I shall try to keep my comments quite brief. I want to touch on the longer-term impact of the changes that the Chancellor has made in relation to occupational pensions and, in particular, I want to talk about young people taking out occupational and also private pensions.
	There is no doubt that the Turner report raised a number of issues about the pensions crisis. It talked about the fact that the sorts of advantages that pensioners currently have will not be enjoyed by people who are pensioners in 30 years' time, and about the fact that the dependency ratio, which we have not really discussed today, is dramatically increasing. It is not just a question of longevity increasing. The reality is that the number of people who will be expected to fund the state pensions is declining in relation to the number of pensioners that there will be. We have some serious problems. Turner pointed out that even if we have what could be called a modest rise in public expenditure on pensions in proportion to GDPgoing from the current 6.1 per cent. to 6.9 per cent. in 2054that would imply a 27 per cent. fall in average pensions relative to average earnings. For us to match the current level of pensions in relation to earnings, we would need to raise the proportion of public spending on pensions to 13 per cent. of GDP.
	Turner's conclusion was that that simply is not affordable, and therefore future pension provision has to involve people looking to their own private provision. That is why the changes that the Chancellor made in his first Budget were so damagingthey fundamentally undermined people's confidence in being able to do that. I want to talk, in particular, about the impact that it will have on younger voters. Twenty-somethings living in Britain today will face a double whammy. Not only will the money that they pay into pensions be worth less because they will disproportionately suffer from the tax takeit will affect the entiretyof their pension contributions, should they choose to make thembut they will be a generation that has disproportionately to fund an elderly generation claiming state pensions, in a way that no generation has had to do in the past.
	There are some serious barriers when it comes to young people and their ability to afford the consequences of the pensions crisis that has been stored up. Unfortunately, the issue goes further than that. For example, earnings have risen in recent years, but the earnings of young people between the ages of 18 and 29 have risen at only a third of the rate of people in the age group above them30 to 39. In fact, 56 per cent. of those who graduated in 2002 are still dependent on their parents for some form of financial support. That is an amazing statistic.
	When it comes to those who will graduate in the coming years, we also know that the financial rate of return on degreesa degree has often been seen as a way of being financially independent and being able to provide for oneself in the short, medium and longer termhas fallen. A study in 2005 by the university of Swansea said that, for some graduates, investing in a degree may have a negative rate of return. That is an important point. For a long time, the Government had a policy of getting 50 per cent. of all young people into university. Some people may have taken a decision on the basis that they thought that it would be financially appropriate, given the rate of return, but it has not been. Not only that, the other aspect is that we know that the average graduate a couple of years ago left with debts of about 14,000, but the average person entering university now will leave with debts of 20,000. It is okay for the Government to come up with schemes such as personal accounts, which are there for young people to use to save, but my point is that aside from young people's lack of confidence in the pension system, they also simply will not have any disposable income to be able to invest in their long-term financial independence. These chickens are in danger of coming home to roost.
	Only last month, the Chancellor raised tax on low earners with no children. Again, those affected will disproportionately be young people. At the very time when we are hoping that this generation will be able not just to provide for themselves in a way that no young generation has had to in the past, but pay for more pensioners than any generation will have had to do in the past, they are having money taken off them by the Chancellor. That is happening not just when they invest in their pension potthey will have to put up with this tax grab for longer than any other generationbut because they are having their income taxed more than it has been in the past.
	It is naive of the Government to think that putting in place new tools will necessarily mean that young people are in a position to use them. There is also the issue of whether many young people today believe that they are contributing to an adequate state pension through their national insurance and tax contributions. The National Consumer Council said:
	Younger consumers are not convinced that they are building up rights to an adequate state pension when they pay tax and National Insurance contributions.
	People fundamentally do not have confidence in the system that they currently pay into. The key statistics show that, whatever the warm words we have heard from those on the Government Benches tonight, what matters is what people in the real world think and their response to the policies that the Labour Government have brought in.
	There are clear-cut statistics that show what is going on with younger people and their pension provision. Let us look at the Living in Britain general household survey, which was carried out by the Office for National Statistics. It shows that in 1995, 40 per cent. of all men aged between 18 and 24 in full-time employment had pensions. By 2003, the figure had fallen to just 27 per cent. We might have thought that given that more women were in the work force over that period, more would have been taking out pensions, but we would be wrong. In 1995, 46 per cent. of women aged between 18 and 24 in full-time employment were saving in an occupational or personal pension, but by 2003 the figure had fallen to 30 per cent.
	The situation was similar for the next age group up. In 1995, 91 per cent. of men aged between 25 and 34 in full-time employment had either an occupational or personal pension. However, the figure in 2003 was 63 per cent., so the number of people in this country providing for themselves independently of the state has gone backwards. The situation was similar for women. Back in 1995, 83 per cent. of women aged between 25 and 34 in full-time employment had an occupational or personal pension, but the figure had fallen to 66 per cent. by 2003. There are similar statistics for people aged between 35 and 44.
	There has thus been a reduction in people's confidence in providing for themselves, but we also know that people lack confidence in the state's ability to provide for them. We are left with an intractable situation with the result that young people are choosing not to save at all. They are hoping against hope that things will be okay by the time that they retire, although I am sure that many of them would not be able to explain why they necessarily think that that will happen.
	Many young people have seen what has happened to house prices. There have been many negative stories about occupational pensions and we have only to read the papers to find out about the Government's utter dismissal of the parliamentary ombudsman's report and their response to the mis-selling of pensions. People are thus being given the message that they should not trust the Government, especially not this one. When young people think about where they might want to put their money, the message that seems to be getting through to them is that rather than investing in pensions, it would be far better for them to invest in houses, given that that is the way in which their parents have made most money in recent years. All of us in the Chamber know that that is not necessarily a wise long-term investment strategy.
	I am worried that a generation of young people in this country do not think that there is any reason why they should want to invest in a pension. That has been a problem for a long time, and we understand why: retirement seems to be long in the future for young people. However, the steps that the Government have taken have undermined people's confidence in investing in pensions, as is shown by the statistics in the ONS survey to which I referred.
	If young people choose not to invest in pensions, they will end up with no pension provision for themselves and be dependent on the state for support. At the moment, people talk about a grey pound that keeps the economy going, but there is a real danger that people will talk in the future about a grey penny because our pensioners will not be well-off, so they will not be spending money and keeping the economy going, which has been the case up until now.
	The problem is serious. We should not ignore the damage of the Chancellor's change to tax credits on dividends and the dismissal of the ombudsman's report. Young people latch on to that, as well as the lack of confidence and their parents' experience of pensions. Eventually, the effects of what we are doing now will come home to roost. I am greatly worried that we have a Chancellor, who is likely to become Prime Minister, who is so dismissive of this.

Stephen Hesford: Rather like one of my colleagues, I want to treat the debate as what it is. It has been set up by the official Opposition not for a serious discussion of pensions, but as a purely political debate.
	I welcome the hon. Member for Twickenham (Dr. Cable) back to the Chamber. If one were to consider the debate as a prosecution of the Government by Conservative Members, the hon. Gentleman, in what others have called a thoughtful address, acquitted the Chancellor of the main charge. However, he then strangely declared that he would vote with the official Opposition. That is a matter for him, but I suggest that he is taking a populist stance. If there is no conviction, there can be no real support for the Conservative motion.
	Like many hon. Members, I have listened to the debate as it has unfolded. The contributions made by senior Conservative Members were revealing, unlike the sixth-form debating style of the shadow Chancellor. The right hon. and learned Member for Rushcliffe (Mr. Clarke), who has some unclean hands here, was long on rhetoric but short on facts. I suggest to the House that that encapsulates what he was like when he was in office. When my hon. Friend the Economic Secretary to the Treasury forensically probed the right hon. Member for Charnwood (Mr. Dorrell) about what the Dorrell review would have shown, if we had seen the papers, there was a strong suspicion in my mind that the review would have supported what my right hon. Friend the Chancellor went on to do and that the proposal was rejected by the former Chancellor, the right hon. and learned Member for Rushcliffe, on the basis of not argument, but politics. It seemed to me that there was some mileage in the accusation made by my hon. Friend the Member for Coventry, North-West (Mr. Robinson), in his cuddly way, that the right hon. and learned Member for Rushcliffe did not have the guts to take that political decision. The House will want to ponder that.
	We then heard the speech of the right hon. Member for Charnwood. The charge sheet for today's debate is:
	That this House has no confidence in the Chancellor of the Exchequer's handling of occupational pensions,
	and the basis of that charge is the cut in DTC, but the right hon. Gentleman ended up saying that what the Chancellor did was, to use his words, relevant at the margins. It seems to me, as it might seem to the House later on, that it is difficult to convict someone of an offence if what they did was relevant only at the margins, even if that were true.
	The next senior Conservative Back Bencher from whom we heard was the right hon. Member for Hitchin and Harpenden (Mr. Lilley). He got himself in a twist by seeming to accept at one point that there was probably no deficit as a result of the DTC cut. If we were relying on that speech to convict the Chancellor of the charge in the motionit is a serious charge, and I will come on to the motion's wording in a momentit would be very flimsy evidence.
	The next senior Conservative figure to make a speech was the right hon. Member for Wokingham (Mr. Redwood). He seemed to take a different tack from the shadow Chancellor. The burden of what he said seemed to be that the Chancellor's decision to cut DTC had had an effect on the stock market. The problem with that argument was not only that it abandoned the main burden of what the hon. Member for Tatton (Mr. Osborne) had been saying, but thatI pointed this out in an interventionif the right hon. Gentleman's logic was right, the stock market could not have recovered under this Government, although it has. It seemed to me [Interruption.] Does the hon. Member for Runnymede and Weybridge (Mr. Hammond) wish to intervene?

Philip Hammond: I will, if the hon. Gentleman insists. I was simply making the point that just because a man loses a pound, it does not mean that he cannot get richer over time. We argue that the tax grab has had a serious, negative effect on the value of pension funds, and his argument does not counter that point at all.

Stephen Hesford: The hon. Gentleman is not listening; I said that the right hon. Member for Wokingham was making a different point. He had abandoned the point that the hon. Member for Runnymede and Weybridge just made, and was making the point that the dividend tax credit cut had somehow affected stock market value, and that that was why there was a pensions crisis. So the right hon. Member for Wokingham was making a different point, but what I am saying to the House is that even that point was wrong because the stock market recovered under current conditions. Logically, it could not have done so if the right hon. Gentleman had been correct in his assertion.
	In an intervention on the right hon. Member for Charnwood, I made the pointand the right hon. Member for Wokingham emphasised thisthat the one thing on which no one in the House has been able to agree tonight is the figures that are attached to the alleged raid. I may not have noted all the figures put forward by various Members, but none of the figures that I have heard agrees. There has been mention of 550 billion, 79 billion, 54 billion and 100 billion, and somebody even put forward a figure of 1,000 billion.

Charles Walker: A trillion.

Stephen Hesford: The hon. Gentleman says, ridiculously, a trillion, but if

Michael Penning: A trillion is a thousand billion.

Mr. Deputy Speaker: Order. No insults from a sedentary position, please. Interventions are fine, but not comments from a sedentary position.

Stephen Hesford: I am obliged, Mr. Deputy Speaker.
	We have heard many figures, but not all of them can be right. If someone sought to convict the Chancellor of the serious charge made in the motion, we would expect them to agree on what his so-called smash-and-grab raid has done, but no one in the House tonight has been able to agree on the figure. To carry on with my analogy, if this was an ordinary workaday court rather than Parliament, on the evidence that has been laid before us tonight a judge would have to withdraw the case from the jury, because there is not sufficient evidence that stands up to scrutiny to make a serious case of the sort that the Opposition wish to put forward.
	I said that I would turn to the politics of the matter, and I will. Why are we having this debate? That question has been asked by a number of right hon. and hon. Members. We are having the debate on the back of research by  The Times that was taken up by those of a  Daily Mail tendency. The Opposition are being entirely bandwagon-like and opportunistic about the matter. It is not that they had an interest in the subject and so brought it forward; they are running with the subject on the back of that research. There is synthetic anger from Members on the Opposition Benches.

Michael Penning: On the cynical point that the hon. Gentleman just made, I have 700 constituents who have had their pensions stolen, and the ombudsman ruled that there had been misadministration by the Government. That is why we are having this debate.

Stephen Hesford: I am afraid that that synthetic anger just does not work, because if the hon. Gentleman had been in the Chamber when the hon. Member for Tatton opened the debate, he would know that the shadow Chancellor never mentioned any part of that issue.

Michael Penning: Will the hon. Gentleman give way?

Stephen Hesford: No. That issue is not part of the charge put before the Chancellor, so the hon. Gentleman is making a different point entirely.
	I differ slightly with my right hon. Friend the Member for West Dunbartonshire (John McFall), the Chair of the Treasury Committee, who called the debate hypocritical. I disagree with him on that; it is not just hypocritical, but cowardly. It is cowardly because there would be a possible justification for what Opposition Members say if it was their policy to reverse the decision, but it is not and it never has been. Theirs is synthetic anger because they will not reverse the decision, and that is fatal to their argument. Their argument is hypocritical because, as has become clear in the debate, they do not come to the subject with clean handswhat my right hon. Friend the Chancellor did was continue a policy that was started under the Conservative Government, and my right hon. Friend made that point.
	Let us say that a defence needed to be put forward, although I do not think that we have even got to that stage, as my right hon. Friend the Chancellor made a strong case for us when he spoke in the debate. Putting aside party politics, I want to consider, in the cold light of day, what the City makes of the debate. Last week in the business section of  The Independent, Jeremy Warner talked about the fact that the issue had been raised.  [Interruption.] I know that Opposition Members do not want to listen to this, but they may find it just a little instructive. Mr. Warner found himself slightly embarrassed to have to return to the subject. He had, quite properly, been on Easter holiday. He came back and found that there had been a row about the issue, and he found that he was a bit out of the loop. He was genuinely surprised and mystified about why the matter was being discussed. He starts his piece by saying:
	Forgive me for returning to the subject of pension...deficits.
	He talks about the idea of the subject being raised by those of  Daily Mail tendencies, and he uses the word revelation, and puts it in inverted commas. In other words, there was genuinely nothing new that was being discussed. He, an economic commentator, makes a point that I have already made: the anger is synthetic.
	He went on to say:
	I can confidently dismiss the rantings as somewhat exaggerated in view of the story's significance.
	There are many charges, he says, that others may wish to level at the Government but
	destroying the private sector pension industry through a single act of taxation is not one of them.
	That acquits the Government on the central point, and I urge Opposition Members to reflect on it. He goes on to say:
	Nor in truth was the policy as outrageous as it has come to be seen.
	After 10 years, it was a case of dj vu. He said that
	removing the tax credit on dividends was a relatively minor adjustment in policy or even an evolution of it
	I have made that point already
	since the process had begun under the previous Tory Administration as an apparently painless way politically of rebuilding the public finances.
	In the 10 years since the tax credit was abolished, the measure has cost...30 billion.
	That figure is lower than the figures that have been bandied about, but he says that it is a small fractionand this is the point
	of the total liabilities faced by these funds and by no means the biggest contributory factor to the current problem.
	Hon. Members have made that point. He continued:
	Indeed, the tax raid barely figures in the 'Big Three' factors...cited by Stephen Yeo
	who, I understand, was pensions adviser to the hon. Member for Havant (Mr. Willetts) when he shadowed the pensions portfolio
	as the primary cause of the meltdown in final salary pensions.
	That primary cause, I reiterate for the benefit of Opposition Members, is growing longevity, the cost of providing for which is much higher than originally anticipated. The second major factor is lower investment returns, and we have heard about the so-called crash on the stock market. Opposition Members have asked why my right hon. Friend the Chancellor stopped quoting figures at 2000 or thereabouts. He did so because that date delineates the point at which conditions changed. That had nothing to do with my right hon. Friend, and that is the point. In conclusion, this has been a synthetic debate.

David Gauke: As always, it is a great pleasure to follow the hon. Member for Wirral, West (Stephen Hesford), whose contribution was in the style of a winding-up speech. I certainly look forward to the day when he can deliver a winding-up speech from the Dispatch Box.
	It has been a curious debate, because there is an argument, which is wrong but respectable, for the abolition of tax credits. That argument is simply that the Government need to find revenue somewhere, and they can do so by abolishing tax credits. That was certainly touched on by the hon. Member for Coventry, North-West (Mr. Robinson) in his speech and made explicit in his book The Unconventional Minister, in which he argued that the Government needed the money. That is a valid argument, because any taxation has a downside effect. If one increases taxes on income, that acts as a disincentive, and if one introduces high rates of corporation tax that forces businesses overseas. That tax on pensions caused harm but, on balance, the Government took the view that it was worth introducing. That is a wrong but respectable argument. However, we have consistently heard Government Members, particularly the Chancellor, advocate a rather different approach, which sticks doggedly to the position taken in 1997 and stipulates that, first, the abolition of tax credits on pension funds will not damage pension funds and secondly, it will be good investment.
	That extraordinary argument was made by the Chancellor in his 1997 Budget, and he and a number of his colleagues made it earlier today. First, the notion that taking 5 billion a year out of pension funds does not damage those funds is ridiculous. Secondly, the belief that it is good for investment is not supported by the facts. With the benefit of hindsight, there is absolutely no evidence that it has encouraged investment. As we have heard, business investment as a proportion of gross domestic product has fallen to record low levels under the Government. Adair Turner, the then chairman of the CBI, said at the time that
	this may increase the cost to business of funding employee pensions and may reduce funds for investment.
	In 2005, a study by the Institute for Fiscal Studies, to which the hon. Member for Twickenham (Dr. Cable) has referred, showed that that had no effect whatsoever on investment, which should have been apparent even at the time.
	My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) and my right hon. Friend the Member for Charnwood (Mr. Dorrell) made the very good argument that it is a curious idea that the best way to allocate resources is to keep funds within existing companies. The argument that the management of existing companies should not distribute profits in the form of dividends is absurd, because innovation often occurs in new companies. Freeing up funds from companies does not necessarily mean that those funds go to consumption and are lost from investment, because it can often be positive. When the economy has done well in recent years, it has often involved new businesses with, it must be said, private equity.
	At the time, the argument was made that high dividend payouts are not necessarily bad for a company in terms of long-term investment, because high dividends often increase a company's share value, and an increased share value improves a company's position to borrow. The argument does not stand together either in theory or as it has turned out in practice.

Hugh Bayley: The hon. Gentleman is arguing that the Government followed the wrong policy in reducing tax credits. Does his party support the reintroduction of those tax credits, and if so, what taxes would it raise to pay for that?

David Gauke: Had the hon. Gentleman been present in the House during the earlier part of the debate, he would know that we have gone through that. As he well knows, Conservative party policy will be very clear at the next general election. The fact remains that the 1997 decision was made on the basis that it would help investment, but the evidence that emerged in the following 10 years shows that it simply did not do so. The purpose was to raise revenue, which, as I have said, is the purpose of taxation, but that was not how it was presented. That is the charge that we have made against the Chancellor.
	What the Chancellor did in 1997 is something that he has done many times sincehe raised taxes, but he did not say, Look, I'm raising revenue. These are the downsides, but I want the extra money to spend on public services. In that case, he said, It is all for the purpose of improving investment, which was palpably false. In the pre-Budget report, he claimed that he is helping the environment by doubling the rate of air passenger duty, when the truth is that that was for the purpose of raising revenue. It has been the style of the Chancellor throughout not to be open and transparent about his policies, but to try to conceal tax-raising policies by claiming that they are some kind of technicality.
	I shall quote an article by Evan Davies, the BBC economics correspondent, in an article on his website, which was not entirely critical by any means of the Chancellorindeed, there were a number of complaints in the comments section about its being far too sympathetic. It states:
	anyone listening to his account of the tax change...might have been forgiven for thinking it was simply designed to remove some technical distortions prevailing in the tax system. They knew it was more than that.
	The charge against the Chancellor is that he was not clear and straight with the British people, which is important for two reasons. First, it does nothing for the credibility of politicians as a whole when we are not open and clear with the electorate. Secondly, as my hon. Friend the Member for Putney (Justine Greening) has said, had it been clear that greater demands were being made upon pension funds, and had people realised that would be expected of them in their personal contributions, then maybe people would have adjusted their behaviour, but they did not do so, which is partly the fault of the Chancellor for not making the situation clear.
	The Chancellor does not tend to be terribly straightforward, and as a member of the Treasury Committee I have witnessed that on more than one occasion involving not only taxes but spendingsometimes there is double counting, and sometimes the figures from several years are rolled up to come up with one grand total.
	In this year's Budgetthis is directly relevant to the debate about occupational pensionswe saw another technique with regard to the financial assistance scheme. The Chancellor made great play of the fact that he has increased the amount from 2 billion to 8 billion but, as Treasury officials confirmed to the Treasury Committee, if one looks at it on a net present value basis, as every actuary would, the figure is much lower1.9 billion. There was no extra money. There are no extra sums for it in the Department for Work and Pensions budget; it comes out of the existing budget over a 60-year period.
	That is important because the financial assistance scheme is supposed, but is failing, to help many of our constituents who have been left without their occupational pensions. The extent to which that is directly linked to tax credits and other factors makes it a complex matter. None the less, the parliamentary ombudsman has found that there was maladministration because of the publicity material that was provided. It has left people in great difficulties, including many of my constituents who formerly worked for Dexion.

Michael Penning: I am pleased to see the Secretary of State for Work and Pensions on the Front Bench to hear this intervention. Is my hon. Friend aware that Peter Humphreys, who heads the Dexion compensation team, is in intensive care suffering from a very difficult illness? He phoned me from there today to ask me to bang heads together across the House to support tomorrow's amendment, which has cross-party support, so that people can get the compensation that they so rightly deserve.

David Gauke: I am grateful to my hon. Friend, who has had constituents who have not lived to see compensation from the financial assistance scheme because of delays in the system. The administration has cost 9 million, and only 3 million has been paid out. There are great difficulties with the FAS as opposed to the Pension Protection Fund. I hope that we can make substantial progress on the issue tomorrow.
	The Chancellor has not been straightforward, open and transparent about his tax increases on pension funds, and the same applies in relation to the funding of the financial assistance scheme and the way in which the information was released. It was extraordinary to hear him saying how pleased he was that it had been released after he hadfor reasons that I can understand, to some extentfought it for two years. As a member of the Treasury Committee, I was particularly frustrated by the fact that it was released on the Friday after Parliament had gone into recess, as that was the day after he had given evidence to the Committee. We could have had the opportunity to grill him on the matter in much greater detail even than on an event such as today's debate.
	It comes down to the same thing all the way through. The Chancellor fails to provide open and transparent answers but is evasive and, at times, sneaky. He claims, as a Chancellor, to be interested in the long term, but attacking pension funds is as short-termist as one can get. He claims, as a Chancellor, to be caring and compassionate, but he has done very little for the 125,000 workers exposed to losing their occupational pension funds. I hope that the House will do something for them tomorrow.

Iain Wright: It is a pleasure for me to follow the hon. Member for South-West Hertfordshire (Mr. Gauke), whom I genuinely rate and like. We went through the Standing Committee on the Finance Bill together last year, and he regaled us with tales of Mrs. Gauke. I hope that she is well.
	Last year, I participated in the pensions debate. I followed the hon. Member for Hemel Hempstead (Mike Penning), who is in the Chamber tonight and whose commitment to this issue is not in any doubt, as I think the whole House will agree. I was struck at the time by the Opposition's amendment, which stated that the House should
	recognise the importance of consensus in ensuring long-term, affordable and sustainable pensions reform; and therefore welcomes the commitment of all major parties in the House to engage in the process of consensus building.
	The shallowness of that commitment is clear from today's debate and the antics of Conservative Members, especially Front Benchers.
	The idea that occupational pensions, especially those in defined benefit schemes, were perfect before 1997 and decimated by one single act in the Chancellor's Budgetthe implication of some Conservative Members' contributionsis wrong, misleading and invidious.
	We are experiencing a massive change in the provision of retirement benefits. Much of that is to do with globalisation and the links between Governments, companies and financial markets around the world, much is to do with demographic changes and much is to do with policies that previous Conservative Administrations pursued.
	Companies in the post-1945 period provided an element of security for workers in retirement provision. Defined benefit pension schemes helped inject motivation and loyalty into the work force. That was entirely feasible in the relatively stable environment of the post-war period. The employer bore almost solely the risks associated with planning for retirement through a defined benefit scheme. If a defined benefit scheme fell short, the employer topped it up. Everyone accepts that that has been under severe strain for the past quarter of a century. During that period, some companies have tried to transfer the risk of retirement provision from them and towards the employee or the Government.
	Moreover, high stock market returns in the 1980s also prompted many companies, as we heard on numerous occasions today, to take pension contribution holidays. According to Inland Revenue figures, employers collectively saved almost 18 billion during the 1990s pension holidays, although employees were, more often than not, forced to carry on making payments.
	The TUC said that contribution holidays have typically favoured employers over employees. It estimates that 94 per cent. of surpluses were used to reduce employers' contributions or to give them a contribution holiday, with less than 6 per cent. providing employee contribution reductionsa ratio of 16:1.
	In the 1990s, Unilever took seven years of pension holiday. It also took 270 million out of the then pension fund surplus and put it into its profit and loss account. In the decade after 1992, almost 1.5 billion was taken from its pension fund and almost two thirds given back to shareholders in the form of higher profits and larger dividends. I can envisage people saying, Nothing wrong with that. However, last month, the company announced that it would close its final salary scheme to new entrants. It has failed to provide for liabilities in the long term.
	The general reluctance by firms to hold the balance of risk is predominantly due to demographic changes. That has been mentioned in the debate, though not as often as I expected. The developed world is getting older and that poses daunting challenges. Declining birth rates means that the work force is not being replenished in western Europe, Japan and north America. The ratio of workers to pensioners is getting smaller and that will have a momentous impact on productivity rates and tax levels. That is happening throughout the developed work and I therefore find it odd that the Opposition have not mentioned it in the debate.
	The Opposition's comments imply that only this country is affected by pressures on occupational pensions. That is far from being the case. A recent report by PricewaterhouseCoopers suggests that the state retirement age should be increased to around 70 in Germany and around 72 in Italy to allow state and occupational pensions to continue to be linked to earnings with unchanged contribution rates. PricewaterhouseCoopers also states that further delays will only make the required reforms more painful in the long term.

Graham Stuart: Does the hon. Gentleman agree with the right hon. Member for Birkenhead (Mr. Field) that we have gone from having one of the strongest occupational pension systems in Europe to having one of the weakest?

Iain Wright: No, I do not. I am trying to make the case that, over the past quarter of a century, different challenges and massive global forces have changed the situation. I am not saying that everything was perfect in 1997, and that with this one change, everything has gone bad. I am trying to advance the case that there are more fundamental, long-term changes taking place. I would have hoped that the House would unite to scrutinise those organisations that fail to honour their promises to their employees, but that does not seem to be happening on a cross-party basis, at least not tonight.
	The trend away from defined benefit occupational schemes has been exacerbatedand, indeed, encouragedby the policy decisions of Tory Governments. We have heard how Lord Lawson, as Chancellor, decided to tax pension fund surpluses in the mid-1980s, providing a marked incentive for companies to reduce those surpluses through payment holidays or additional dividends. That demonstrated short-term gain at the expense of long-term consideration for the British economy and the health of pension funds. The Thatcher and Major Governments also encouraged a shift away from occupational pensions towards individual private pensions.

Philip Hammond: If contribution holidays are such a problem, would the hon. Gentleman also argue that the reductions that this Government implemented in the minimum funding requirement should not have been made?

Iain Wright: I am not going to go down that route. Certainly there was an assumption that the sun would always shine on pension funds and stock markets, but hindsight is a wonderful thing. The long-term challenges, including an ageing population and other changes in society, have been recognised and should have been taken into account by actuaries and companies.

John Hutton: In relation to the point that the hon. Member for Runnymede and Weybridge (Mr. Hammond) has just made, I am sure that my hon. Friend will be glad to know that all those changes were made properly and in accordance with the actuarial advice that Ministers received. That was made clear in the ombudsman's report.

Iain Wright: I am extremely grateful to my right hon. Friend for that helpful intervention.
	I want to return to the shift from occupational pensions to private pensions. The emphasis on commission meant that hundreds of thousands of people were persuadedby fair means or foulto leave good, safe occupational schemes and to take out inferior personal plans instead. Well over a million people have received compensation following that mis-selling, largely as a result of measures taken by this Government.
	The crux of the Opposition's argument about the Chancellor and occupational pension schemes seems to hinge on one single act, yet we have heard many times in the debate today that Lord Lamont, as Chancellor, announced a reduction in the dividend tax credit in his 1993 Budget, and carried that out five times. In announcing the reduction to the House in March 1993, he justified it by saying:
	The reduction in the tax credit that I am proposing will therefore have two important effects. First, the payments that lower rate payers, non-tax payers and particularly pension funds get from the Inland Revenue will be reduced by five percentage points, saving the Exchequer no less than 1 billion a year. Secondly, higher rate payers will have to pay an extra 5 per cent of tax on the dividends they receive in order to discharge their liability to tax at the top rate of 40 per cent. This, in turn, will yield an extra 200 million a year.[ Official Report, 16 March 1993; Vol. 221, c. 186.]
	There is nothing there to help the underlying competitiveness of British industry, and nothing to stimulate a shift from short-term gain and boom and bust to long-term investment. It is merely a tax grab of 1.2 billion in a vain attempt to manage the economy following the debacle of Black Wednesday.
	What hypocrisy we have heard today! I hope that, if the Opposition are genuinely outraged at the events of 1997, their Front-Bench spokesman will apologise for the things that happened four years earlier and pledge to reinstate the dividend credit, if they feel that strongly about it. From what I have heard today, however, I do not think that that will happen.

Hugh Bayley: Is it not worth recalling that the adviser to Lord Lamont, the Chancellor who cut the dividend, was the right hon. Member for Witney (Mr. Cameron), who now leads the Conservative party? Is not it extraordinary that, when advising the then Government, he pursued one policy, yet when in opposition, he advocates another?

Iain Wright: My hon. Friend makes a good point. This has been mentioned earlier in the debate as well. I was reading Lord Lamont's memoirs in the Library this morning, and I was struck by the fact that, when the right hon. Member for Witney (Mr. Cameron) was employed as a special adviser, Lord Lamont described him as an old Etonian with a taste for the good life. I wonder what that means.
	It is true that the Chancellor in his 1997 Budget abolished tax relief on dividends, but that was accompanied by a range of other policies designed to move us away from short-termism towards stability and encouraging long-term investment. Corporation tax was cut to its lowest ever rate at that time in the UK. The small companies tax rate was cut by 2 per cent., to 21 per cent. There was a doublingwe have not heard about this todayof capital allowances on plant and machinery for small and medium-sized firms so that if companies invested in 1997-98, they could set off against tax a half of their total investment.
	In those decisions made in 1997, the Chancellor laid the foundation for sustained economic growth. That was the conclusion of the International Monetary Fund in the past few weeks in its article IV consultation with the UK, which stated:
	The Executive Directors welcomed the economy's continued economic performance, which they attributed in part to policy frameworks that are responsive to the requirements for sustained strong growth, low inflation, a stable value for sterling and continuing growth of London as a global financial Centre with sound institutions.
	That is not indicative of an economy beset by weak infrastructure and short-term decisions, which is where we were 15 years ago. The blocks are in place for stability and long-term investment decisions.
	However, it is true that more needs to be done. Many of my constituents, who come from a traditional manufacturing area with good occupational pensions, have pension funds in schemes such as Roxby and Expamet. They have saved all their working lives and feel let down by changes and cuts to their planned provision. To tackle the plight of my constituents and others, a consensus is needed between the House, the Government, companies and individuals to ensure that those pensioners who have saved all their working lives in occupational schemes secure the benefits for which they planned. However, the comments and interventions by Conservative Members show that we are a long way from that consensus.
	A key reason for changes to pension provision has been the fluctuating performance of stock markets around the world over the past 15 years. That has been mentioned time and again. High returns in the 1980s prompted complacency and the feeling that the sun would shine for ever. That obviously was not the case.
	Between 2000 and 2002, stock markets around the world experienced sharp fallssomething like $8 trillion of assets were lost in the US alone in that period. The NASDAQ dropped to as low as 1,108.49, a 78.4 per cent. decline from its all-time high of March 2000, a result of the bursting of the dotcom bubble, and the Dow Jones lost 26 per cent. of its value between 1999 and 2002you can tell that I am a chartered accountant, Mr. Deputy Speaker. Given the openness of the UK economy and the central position of London in the world's finance markets, it is inevitable that this country would feel the brunt. Between 1999 and 2002, the FTSE 100 fell by 43 per cent., knocking some 250 billion off the value of pension fund assets. Yet pension fund deficits have reduced markedly over the past few years, reflecting the stock market improvement in recent months and years. Last month, Deloitte, a firm that I used to work for, forecast that the total deficit for the final salary pension schemes of the UK top 100 companies is currently 21 billion, with 25 per cent. of schemes now having a surplus.
	The first three months of 2007 have been a roller-coaster ride. In the last week of February, deficits rose by 20 billion in one week as world stock markets fell dramatically. However, a combination of a recovery in the stock markets and a fall in the price of bonds has reduced deficits to a five-year low, showing the close correlation between stock market performance and the health of pension funds. If the Conservative party were determined to secure a consensus on this subject, that close correlation would be recognised.
	I began by saying that providing for retirement is one of the biggest problems facing this country. Difficulties and challenges are being prompted by an ageing population, an end to paternalism, social changes, lower stock market performance and annual returns, and a wish for companies to transfer the risk of retirement away from themselves towards employees and the Government. There was an opportunity for Opposition Members to pledge consensus and seek to find appropriate ways of securing stability and reassurance for pensioners in the face of those massive global changes, but they failed to do that.
	The use of terms such as pension crisis and the wording of today's Opposition motion, however brief it is, further undermine confidence in a pensions system that is still trying to recover from the likes of Maxwell, mis-selling and Equitable Life. As was pointed out by the hon. Member for Putney (Justine Greening), who is no longer in the Chamber, that puts people off. People are reluctant to save for their retirement through pension contributions, believing that it is not worth doing. That will do nothing to help those with occupational pensions who find themselves unfairly caught up in major global forces.
	Today the Conservative party has ignored an opportunity to talk constructively about the long-term future of the country's economy and provision in retirement. Instead, it has focused on distorting history for their own narrow, short-term political advantage. No change there, then!

Graham Stuart: It is a pleasure to join in the debate, which has been an interesting one, and to follow the hon. Member for Hartlepool (Mr. Wright). I have never served on a Committee with him, but I like him a great deal and admire him enormously as a hard-working constituency Member. [Hon. Members: But] But [Laughter.]
	The hon. Gentleman suggested that some form of party politics was being played. I think that holding the Chancellor to account on an issue that is of major importance to the future of the country and to so many people in itnot least those who have the leastas the handling of pensions is an entirely legitimate thing for the House to do, and that it is entirely legitimate for the Conservatives, as the party of opposition, to put that issue before the House and indeed the nation.
	As Members have pointed out, this debate was triggered by the revelation of information whose emergence into the public domain the Chancellor resisted for years. I considerwith respect to the hon. Member for Hartlepool, and to other Labour Membersthat two main charges have been levelled at the Chancellor and his handling of pensions so far. One concerns the impact of the pension tax raid on the long-term value of pensions; but I think the stronger concerns the fact it was done in an underhand way, with no openness or transparency. Today, 10 years on, we were treated to a speech from the Chancellor that again failed to be honest about the reality of what is going on. That, more than anything elsethe lack of openness, transparency and honestyis the reason for people's loss of confidence in the pensions system.
	In his first Budget, the Chancellor started as he meant to go on. He was underhand, imposed extra burdens on hard-working people, and drove millions into dependency. He did that by his removal of the tax credit on dividends, with little explanation in his Budget speech.
	One way of judging the decency of a society is to judge the way in which it treats older people. One way of judging the decency of a Government is to judge the way in which they support and encourage people to be financially independent in old age. Communities with a social conscience revere their elders, respecting the contributions that they have made for so many years. Those societies protect, look after and cherish those who no longer work. In Brown's Britain, however, far from being valued as independent citizens, older people are sucked into his labyrinthine world of credits, benefits and state dependency.
	What does it say about the Chancellor that his legacy to Britain's elderly is to have helped to rip away the foundations of what a Labour Minister once called
	one of the strongest pension provisions in Europe?
	Terry Arthur of the Institute of Actuaries estimates that the Chancellor's tax raid has cost at least 100,000 million from pension funds, and that
	even 150 billion may still be a conservative estimate.
	This raid has betrayed Britain's pensioners, and makes a mockery of what the Chancellor promised in 1996. I do not think it has yet been mentioned today that in 1996when he was a wannabe Chancellor rather than the man who cannot get out of the post quickly enoughhe said
	I can give this pledgefairness to the pensioners under Labour.
	Even given the Chancellor's rather stilted delivery, I think that that pledge was fairly clear. But is it fair that 20 per cent. of pensioners in the United Kingdom are living in poverty because of a state pension of just 84.25 a week and a humiliating means-testing system that many proud older peopleas many as 1.5 millionsimply refuse to enter?
	Was it a sense of fairness that led the Chancellor to try to prevent  The Times and its readers from knowing the advice that he received 10 years ago, or that led him to release the information in a parliamentary recess and while he was abroadin Afghanistan? Is it fair that the poorest pensioners are the hardest hit? According to the released papers, Treasury advisers told the Chancellor that his tax change would
	lead to a reduction in pension benefits to the lower paid,
	and that
	quite clearly any loss of pension could be difficult for someone with a small income to cope with.
	That was the advice that the Chancellor was given, and he ignored it. I would be interested to learn how those with the least have been served by the Chancellor's tax raid.

Hugh Bayley: The hon. Gentleman asks whether it is fair to have a means test, but why did his party have a means test for pensioners? Also, is it fair that the means test that operated when his party was in power provided poor single pensioners with a weekly income of 68? Is it not fairer that under our system of pension credit that sum is now 117 a week?

Graham Stuart: The problem with the means test is that too many people are means-tested, and no party has managed entirely to eradicate means-testing.
	The link with earnings was broken in 1980. The Chancellor claimed today that he had brought it back. That was another of his little slips with the truthhe never quite gets it. He has not brought that link back; he has said that if it can be afforded it might be brought back in 2012. Ever since I have been involved in parliamentary politics, I have campaignedas, I am glad to be able to say, has my partyto bring back that link, because it is important that we restore dignity to people in old age. We must minimise the number of people who are forced to rely on means-tested benefits. The means-tested benefit has been allowed to grow de facto with earnings and yet the basic state pension has risen merely in line with prices, so the number of people who have been drawn into means-tested benefits has increased. The predictions for the period to 2050 are truly horrifying. That is why the House needs to look ahead on a consensual, cross-party basis and find a better way of dealing with our pensions system than we have had in the past, particularly in the past 10 years when this Chancellor has failed. One of the purposes of this debate is that, by bringing the Chancellor's record to account, we can help outline the reality of the position in which we find ourselves today, and when that is properly observed and understood we can move forward on a cross-party basis and find a solution to our pension problems.
	Fairness is the last word that Members or anyone else would wish to apply to the Chancellor's attitude to pensioners. That brings us on to the subject of the Chancellor's character. What sort of person takes advice from industry, independent experts and his own Treasury specialists that suggests that the pension tax would cause great damage to the country's economy and the poorest pensioners and then goes ahead with it in any case? Perhaps only someone with breathtaking arrogance would do that. What sort of person would announce such a change in such an underhand way and seek to cover his tracks so assiduously? I will leave the House to decide on the answer to that for fear of breaching the rules on parliamentary language.
	If we cannot expect fairness from our Prime Minister-in-waiting, what can we expect from him? Unfortunately, the answer to that is: more underhand behaviour. Members noted that the Treasury papers came out on 30 March when Parliament was in recess and the Chancellor was in Afghanistan. That chain of events might not have been quite as extreme as another example of a good day to bury bad news, but that clumsy cover-up is symptomatic of the manipulative relationship that the prospective Prime Minister has with Parliament and with pensioners.
	Fairness and openness have been dismissed as qualities that we can expect from the Chancellor if he succeeds to higher office. He maintained todayas he has done since 1997that the removal of tax credit from pensions has boosted investment and performance. The suggestion that taking money away from pension funds was somehow going to boost investment has been commented on by many Opposition Members. Many colleagues have referred to the figures, but it is worth giving the precise figures. When Labour came to power in 1997, business investment was 11 per cent. of GDP. Now, according to the 2006 figures from the Office for National Statistics, it is 9.1 per cent. That shoots that particular fox.
	The other fox that has been set runningI do not suggest that it was done on any organised basis, as I am sure that many Labour Members have been sitting up half the night reading thick tomes on the subject of pensionsis the idea that the Conservatives were cutting that tax relief anyway and would have abolished it themselves. However, we have heard the most compelling evidence today from the former Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), and from the former Financial Secretary, my right hon. Friend the Member for Charnwood (Mr. Dorrell), that Ministers in that Conservative Government considered the issues, listened to the representations from Treasury officials and others and concluded that it would damage pension funds and the economy, and that it would hurt those with least. The members of that Conservative Government decided not to abolish that 20 per cent, advance corporation tax or dividend tax reliefwhatever it is called. That shoots the Chancellor's other fox.
	We are debating the Chancellor's handling of occupational pensions. Let us look at what has happened to occupational pensions on the Chancellor's watch, because that would seem the most obvious thing to do, rather than only obsessing about the tax grab. The truth is that more than 60,000 occupational pension schemes have wound up or begun the process of winding up since Labour took office in 1997. Labour Members have suggestedin the peculiar Brownite way of picking dates that do not sound very naturalthat the schemes were all collapsing anyway, but five sixths of the final salary schemes that have closed have done so since 2000. The idea that they were collapsing under the last Conservative Government is entirely false: it has happened on the Chancellor's watch. The pension schemes have collapsed, they have closed to new members. As my hon. Friend the Member for Putney (Justine Greening) so powerfully set out earlier, we have seen the opportunity of a secure old age through their pensions, hope for the future and confidence in those who govern them removed from young people.

Hugh Bayley: What is the hon. Gentleman's policy for reviving the fortunes of occupational pension schemes?

Graham Stuart: If the hon. Gentleman had spent more time in his place during the debate, he would not keep repeating points that have already been made. The policies of Her Majesty's Opposition will be made clear before the next election. So many schemes have closed. The destruction has happened, and that may mean that when the next Conservative Government comes in 2009 or 2010 we may have to find alternative ways of promoting saving and encouraging the young people who have lost so much confidence and can see no positive future. However, it is above my pay grade to say exactly what we will do.
	When we consider the record of this Chancellor and Government on occupational pensions, we see that 12.7 million UK workers, or 45 per cent., have no pension provisiona rise of 5 per cent. since 1997 or 2.1 million more people. More thoughtful Labour Members will find that a sobering thought. At a time when the economy has broadly done quite wellif not as well as the Chancellor likes to make outand this country has grown richer and had a period of stability, thanks to the foundations laid by the last Conservative Government [ Interruption. ] Ministers may scoff, but when they rest their heads on their pillows tonight, they cannot be proud of the fact that in that timewhich has not been an economic disaster2.1 million more people do not have occupational pensions. Far from growing, under this Chancellor private pension provision has suffered an underlying decline.
	The Opposition have made a strong case against the Chancellor. We have used the evidence provided by many specialists to lay out the figures, but they are not precise: I have repeatedly asked Ministers to give us their estimate of the impact on pension funds of the abolition of dividend tax relief, but it has not been forthcoming. I should be delighted if the Secretary of State for Work and Pensions, when he winds up the debate, were to give us an honest assessment, but I expect that he will refuse to answerjust as the Government refused to give the papers to  The Times until forced to do so.
	We have made the case that pension funds have suffered a great loss as a result of the tax change. Although stock market fluctuations and various other factors have had an effect, we believe that the Chancellor, when he took away 100 billion or 150 billion from the pension funds, inflicted a mortal blowto them, and to people's confidence in them.
	An even more damaging charge against a man who would be kingI am sorry, I mean Prime Ministeris the fact that he never acts openly. For the Chancellor, transparency is an alien concept, and that is what upsets people the most. As many colleagues have said, Governments have to find tax revenue somewhere, but to extract tax in an underhand way that puts at risk the security of people in old age is irresponsible and reprehensible, and renders the Chancellor unfit for higher office.

Philip Dunne: It is always a great pleasure, and an increasingly frequent one, to follow my hon. Friend the Member for Beverley Holderness (Mr. Stuart). He spoke with his customary vigour, both in his main contribution and in his several robust interventions earlier.
	This is a very important debate, for various reasons but not least because it will have an impact on a great many people outside the House. The hon. Member for Hartlepool (Mr. Wright) made a very thoughtful and welcome speech, in which he set out some of the demographic matters that had not been mentioned before. It is a fact that 18.5 per cent. of this country's population are over the age of 65, yet many people, until approaching retirement, have no real understanding of the significance of pension arrangements. Moreover, a great many of the people who have retired have suffered the shock of discovering that their pension schemes have closed.
	As we have heard, more and more people find themselves in pension difficulty as each year goes by. I am especially worried about that, because so many people choose to live out their retirement days in my constituency: 26 per cent. of my constituents are over 65, and the proportion is expected to rise to 30 per cent. by the end of the decade. One reason I was especially interested to join the Work and Pensions Committee when I came to the House was that, during the last general election, a great many people raised their concerns with me about the pensions crisis developing under this Government. In my constituency, members of pensioner groups and the local senior citizens forums regularly ask me what can be done to put right the damage inflicted on pensions.
	Generally speaking, people have lost confidence in their retirement prospects, but that is not entirely due to the decision to abolish dividend tax credit. I do not intend to argue that that was the sole reason, as the problem has several contributory factorsone of the most fundamental being that the savings ratio has halved over the past 10 years. This is an argument for which the Government take no responsibility, but it is a fact that savings have declined significantly partly because people do not believe that it is in their best interests to save for their retirement.
	Returns from pensions have been cut, as we heard just a moment ago, with the decline in the number of defined benefit schemes. Only a third are now open to new members compared with the number in 1997. The income from final salary schemes is falling across the country. Defined contribution schemes, for all their attractions to the funders, are not expected to provide the same level of income in retirement as the final salary schemes that they replace.
	Another major issue that is having a big impact on people's confidence in retirement has been the threat of means testing. There was a big discussion about that earlier, which I will not repeat. I recognise that a large part of the measures in the Pensions Bill is aimed at reining back the spread of means testing. I welcome that because otherwise, as Lord Turner's report demonstrated, 70 per cent. of the population would be on means-tested pension benefits.
	This debate is important in that it has secured the presence of the Chancellor. My hon. Friend the shadow Chancellor made some important points to tease out of the Chancellor a glimmer of acknowledgement that some share of the responsibility for the problems that have arisen in the occupational pensions sector in the past 10 years could be attributed to him and what he did in the 1997 Budget.
	The debate is relevant not only to the people in this Chamber and not just because the Chancellor has ambitions to succeed the Prime Minister. It is relevant to Labour Members, who have been able to see his reaction and whether he can say sorry, as he was asked to do by my hon. Friend the shadow Chancellor; whether he is able to show some element of contrition and responsibility for the action that he took. I regret to say that there was little evidence of that in his speech today.
	The debate is also relevant following such a long period of denial of the fact that the 1997 decision had any impact on occupational schemes. It is evident from so much external commentary and comments in the debate today that the decision had a significant impact, the scale of which is up for discussion.
	The Chancellor's contribution to the debate will have disappointed many not only on the Opposition Benches but on his own Benches, and most independent commentators. It will have been of considerable concern to my constituents and other people watching from outside the House. It was a disappointing speech from a potential Prime Minister. It was disappointing for the message that he had to give, first, that it was not a real problem, and, secondly, that if there was a problem, it was not of his making.
	The Chancellor's mantra has been that under his stewardship there has been no return to boom and bust. He has mentioned it in every single pre-Budget report and Budget statement since he has had the job. But under his watch in the past 10 years, a large number of defined benefit schemes have gone bust, and two thirds of them have closed.
	Some have questioned why we are raising the matter only now, 10 years after the event. It is perfectly obvious why: we are raising it on the first available opportunity after the evidence was revealed following much teeth pulling from within the Treasury just before the Easter recess. The Opposition are often criticised for not raising the issue regularly in the House and through the media. However, there have been some helpful contributions today, not least from the hon. Member for Birmingham, Erdington (Mr. Simon), who magnificently went through a year-by-year catalogue of the occasions on which this issue was raised by distinguished Members of this House, especially on the Opposition Benches.
	The Chancellor has fought revealing the information doggedly for the past couple of years. He has issued a fog of denial, which has enveloped not just himself but most Labour Members. Few seem to have recognised what happened in 1997. We have heard some astonishing tales of denial, with the exception of two contributions from Labour Members, one from the right hon. Member for Birkenhead (Mr. Field), who referred to the double body blowthe first was an attempt to attack the shadow Chancellor but the second presumably related to the precise measure that the Chancellor introduced.
	The other contribution was from the hon. Member for Coventry, North-West (Mr. Robinson). His speech was revealing. He attempted to paint a caricature of my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) when he was Chancellor, but the hon. Gentleman's description could have been that of the present Chancellor. He talked about a Chancellor who was running up high debts, who had a poor forecasting record and indulged in pre-election spending booms. On the Conservative Benches, we recognise all those things as attributes of the present Chancellor. The hon. Gentleman's candid admission that the dividend tax credit was entirely a revenue-raising measure should percolate to other Labour Members.
	I want to highlight two misunderstandings that emerged through the fog on the Labour BenchesI use the word fog to be charitable, but it may have been a deliberate attempt to spin Labour's side of the story. First, Labour Members tried to claim that before 1997 there were five Conservative cuts in dividend tax credit, which were analogous to the Chancellor's decision to abolish the credit. However, that claim does not recognise the fact that the first four cuts resulted from limiting the credit to the basic rate of income tax, which was successfully and successively cut by Conservative Chancellors during the 1980s and the early 1990s. That is not the same thing as abolition of the credit.
	Secondly, several Members criticised pension holidays as a major contributor to the pension crisis. The hon. Member for Amber Valley (Judy Mallaber), who is not in the Chamber, claimed that pension holidays were forced on companies by measures introduced in a Conservative Budget in the mid-1980s. To put Labour Members straight, the purpose of those measures was to stop companies sheltering profits in their already well-funded pension schemes. They were legitimate measures to ensure that profits came into the corporation tax net. As Opposition Members have said, notably my right hon. Friend the Member for Wokingham (Mr. Redwood), the whole structure of trusteeship in the pension fund industry, with independent trustees and reporting actuaries, militates against assets being taken out of fundsother than in the Maxwell case, which was referred to earlier.
	Many Labour Members are confused about the impact of the dividend tax cut on pension schemes. I urge them to go back to their constituencies, as I am sure some will do for the local elections, and talk to their councillors about what has happened to council tax as a result of the need to restore some of the unfunded deficits in council pension schemes. They will get a much better answer if they ask how much the dividend tax credit contributed to the situation.
	In conclusion, there is a degree of consensus on the need to sort out the current pension crisis and on what needs to be done to sort out state pensions and to restore the savings ratio and personal responsibility. However, consensus is best achieved when analysis of the causes of the problem is shared, so it is disappointing that throughout the debate there has been no hint of contrition from the Chancellor or his supporters about the causes of the problem or any recognition that it was of his making.

Philip Hammond: The question before the House is this: given what we know now about the circumstances of the 1997 tax raidthe advice that was received, the secrecy with which it was prepared, the concealment of the effects both during the election campaign and after the eventdo we, in the words of the Leader of the Opposition's motion, have no confidence in the Chancellor's stewardship of occupational pensions, or do we, in the extraordinary words of the Government amendment, note and welcome
	the acts of this Chancellor and Government to...remove the dividend tax credit?
	That is a pretty clear choiceone that millions of savers up and down the country will be watching very carefully.
	What have we heard to help us to make up our minds this evening? My hon. Friend the shadow Chancellor set out the case and asked the Chancellor for a simple thing: he asked for an apology. But what did we get? We got an extraordinary rant from the Chancellor. Actually, it consisted of a speech with no interventions, followed by a series of interventions with no speechpunctuated with all sorts of accusations and assertions. He accused the Tories of not having introduced the Pension Protection Fund before 1997, but there was no need for such a fund before 1997. He told us that auto-enrolment will mean that all employees will have a pension at work, showing that he clearly does not understand the challenges facing the personal accounts agenda.
	The Chancellor then told us that he is looking for long-term answers, but people in this country who believe that their pension is the longest-term issue for them will not understand that comment from a Chancellor who has shattered their confidence in their long-term savings. He told us that because of changes to corporation tax, employers could make higher contributions. That may or may not be the case, but the fact is that they did not make higher contributions. When confronted with the need to make good the deficits, they closed schemes instead, and there was no recognition at all from the Chancellor of the problems faced by the smaller companies, which often do not make profits and do not save corporation tax, that have been at the root cause of the problems faced by the 125,000 unfortunate people who have lost some or all of their pensions.
	The Chancellor told the House that the problems of those pensioners were caused by their employers going bust, but he is quite wrong and obviously does not understand the position at all. Some of those employers have not gone bust and many others have gone bust without causing any problems to the pensions of their workers if their schemes were fully funded. The problem is the underfunding of the schemes, not the insolvency of the employers.
	Perhaps most tellingly of all, we got no apology whatever from the Chancellor. Far from it. Indeed, we got the absolute opposite: with the Chancellor's clunking fist banging on the  Hansards on the Dispatch Box, we were told that if given the chance, he would do it again. Thousands and millions of savers throughout Britain will draw their own conclusions about that statement tonight.
	We heard a very good contribution from my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), who drew the House's attention to the extraordinary fact that the Chancellor, when in opposition, and my right hon. and learned Friend as Chancellor at the time, were considering precisely the same set of proposals and came to completely different conclusions. My right hon. and learned Friend was not prepared to take risks with the security in retirement of millions of ordinary people. He told us how just four sentences in the Chancellor's 1997 Budget concealed the largest tax-raising measure in it. Many of us will remember that Labour Members thought it was a tax cut. It took  The Times of the next day to disabuse them of that.
	Perhaps even more thoughtfully, my right hon. and learned Friend challenged the notion that successful and profitable companies should be allowed to keep all their profits and reinvest them in their own businesses. The Chancellor seems to think that that is the way to promote economic growth, but he should know that it leads to misallocation of capital resources. It should be the owners of capital who have the opportunity to decide where to invest it. Indeed, the Chancellor himself, in finally accepting the arguments for real estate investment trusts in the property sector, has acknowledged the truth of that point.
	My right hon. Friend the Member for Wokingham (Mr. Redwood) drew attention to the interesting fact that the FRS 17 has been almost exactly the same size as the estimated cost of the Chancellor's tax grab. He generously described both the Chancellor and the Economic Secretary as having mounted a clever defence of their policies. I am not sure whether that view persisted, however, when the Chancellor answered my right hon. Friend's intervention as to whether he would be worse or better off if 20 per cent. of his income were taken away by saying that he thought that he would not be any worse off if 20 per cent. of his income were lost.
	Then we heard from the hon. Member for Coventry, North-West (Mr. Robinson). We got a lecture on the skills necessary for opposition and a plea to be a bit kinder to the Chancellor. He made the extraordinary case that the mark of a serious Opposition is making policy in secret, locking it up during an election, concealing their tax raising plans, and then releasing them on an unsuspecting British public after that election is over. But at least we got from him a candid admissionnot in the debate tonight, but in his book, which was quotedthat this was simply a revenue-raising measure. It was nothing to do with stimulating investment or promoting business. It was about hitting pensionsa soft touch. He was honest; it is a pity that he could not have been so at the time.
	My right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) made the key point that what matters is not simply the size of the pension funds, which the Chancellor quoted at the House, but the balance between their assets and liabilities. He drew attention to the real problem of trying to stimulate pensions saving in an environment of high levels of means-testing. That is a real difficulty for the personal accounts agenda, which the Chancellor appears not to recognise.
	Then we had a contribution from the hon. Member for Birmingham, Erdington (Mr. Simon), who asked why we had raised this subject for debate now. Did we pluck it out of thin air? Apparently he has been on holiday for the last couple of weeks and is not aware of the dramatic release by the Chancellor on 30 March of the hitherto secret documents.
	Until 1997, Britain had arguably the best pension provision in Europe and now it has arguably one of the worst. Part of the reason for that is the Chancellor's 1997 tax changes. Ministers deliberately concealed the impact of the annual tax raid, both before and after the event, and have consistently denied that wiping 100 billion or so off the value of pension funds has had any negative effect on pension provision. The Paymaster General, who was then the Financial Secretary, said in July 1997:
	our reforms will benefit pension funds.[ Official Report, 3 July 1997; Vol. 297, c. 508.]
	The then Secretary of State for Trade and Industry told us that the reforms would be good for pensioners. The Chancellor himself reassured the country, saying:
	We are not raiding pensions, that's just ridiculous.
	But a decade later, with the benefit of these documents, we know the extent of the Chancellor's reckless disregard of the warnings that he received and his shameful gambling with the future retirement security of millions of ordinary people. We know that only because of the freedom of information request made by  The Times. The Chancellor told us that he welcomed the information coming into the public domain and he claimed credit for introducing the Freedom of Information Act 2000. So why for two years has he spent our money fighting the release of the papers that  The Times requested, saying that their release would damage the process of government?
	Suddenly, when the damage to the Chancellor's own career progression seemed to be more at risk, the damage to the process of government faded into insignificance and out the papers cameon a Friday afternoon, after Parliament had risen for the Easter recess, when the Chancellor was safely abroad engaged in statesman-like posturing in Afghanistan. The Economic Secretary, whose hands are far from clean in this matter, was left to defend the indefensible. Tonight, we are faced with the even more ludicrous spectacle of the Chancellor's position being defended by the Secretary of State for Work and Pensions. I would repeat his comments on the Chancellor's fitness for the highest office, except that you have previously ruled that they are too unparliamentary to be quoted in the Chamber, Mr. Speaker.
	The Chancellor knew from the outset that his position was untenable. That is why he resisted for two years releasing the papers and why he released them only when Parliament was in recess and when he had put 6,000 miles between himself and this place. Labour deceived the electorate in the 1997 election into believing that it was committed to no new taxes and the Government concealed the effect of the changes after they had implemented them.
	When the whole story came out on 30 March, the Economic Secretary and the former Paymaster General engaged in a predictable series of ducking and weaving exercises in the Chancellor's absence. First, they said that this was all done on the advice of civil servants, but the documents released proved that that was not the case. They then said, Actually, the CBI told us to do it, so that's all right, until up popped Lord Turner to say that that was completely wrong. Despite a few mumblings off in private, I have not heard any Minister say in public that Lord Turner was lying, so if that is what the Government want us to believe, perhaps someone will jump up and say so.
	The hon. Gentlemen then claimed that the whole package stimulated business investment, but business investment has fallen as a percentage of GDP [ Interruption. ] Yes, it has. The Government then said, The Tories did it, but there was a world of difference between the adjustments that my noble Friend Lord Lamont made to dividend tax credit and the wholesale abolition that the Chancellor undertook. I remind the Chancellor that my right hon. and learned Friend the Member for Rushcliffe had taken the decision that no further cuts in dividend tax credit were appropriate or possible.
	The facts are that the pension tax raid was the Chancellor's decision, that it was taken against the advice of his civil servants, the CBI and the Prime Minister, and that it was not an adjustment of rates, but a carefully planned and executed raid that totally abolished dividend tax relief for pension funds. Even after taking the corporation tax changes into account, the raid resulted in a net gain to the Treasury of 3.5 billion. It did not deliver increased business investment, it did not boost productivity growth and it did not help any of the other fundamental drivers of prosperity in our economy.
	I readily recognise that the Chancellor's tax grab was not the only factor affecting pensions, but it was the factor over which he had direct control. The end result is that Britain's gold standard pension system has been reduced to ruins. Some 60,000 schemes with 1 million members have wound up since 1997. Over the same decade on the Chancellor's watch, final salary schemes, except those in the public sector, have lurched into terminal declineless than 10 per cent. of the private sector work force now have access to them. More than 100 billion has been wiped off the value of pension funds and more than 7 billion of annual cash flow is now being sucked into the Chancellor's coffers.
	For the 125,000 people whose pension schemes have failed with insufficient funds to pay them what they are due, the crisis is not a future problem, but something that is real and immediate. The Chancellor has turned his back on those people, which was why my hon. Friend the Member for Tatton (Mr. Osborne) today outlined the measures that we will propose with cross-party support in the House [ Interruption. ] The measures are supported in all parts of the House, except the Government Front Bench. They represent a consensus around the moral and pragmatic case for delivering proper benefits to that group of victims.
	The truth is that the Chancellor thought that he could get away with it. He thought that as long as the dotcom bubble lasted, no one would notice 100 billion or so. He gambled with the future retirement security of millions of ordinary, hard-working people. When the bubble burst and he lost, they were left to pick up the tabthey will not forget that.
	The debate is about the Chancellor, his judgment and his operating style. We have heard how he plotted his tax raid in secret, how he ignored the advice of everyonecolleagues, civil servants and the Prime Ministerhow he dissembled about the effects of his 1997 announcement, and how he has tried to deny the consequences and suppress the evidence ever since. Finally, we have heard how he tried to bury bad news when he could no longer keep it hidden in the Treasury.
	Tonight, the question and the motion on the Order Paper are about the Chancellor's handling of occupational pensions. However, he knows that the question on the lips of millions of pensioners and savers throughout Britain goes wider than that. The House has a choice: it can express its solidarity with the millions of people whose pensions have been affected, or it can turn its back on those people and vote for the Government's whitewash amendment, which actually praises the decision to scrap tax credits. We can reflect the huge concern across Britain about what has happened to our pensions, and about the Chancellor's role in that regard, or we can turn a deaf ear to the questions that are rightly being asked about the judgment and the style of the man who aspires to the highest office in the land.

John Hutton: First, I congratulate all my hon. Friends, who made excellent speeches in the debate. I will come to their speeches in a second. We heard two interesting things from the Opposition Front-Bench spokesmen today.  [Interruption.] No, they were interesting. I was here for all of the debate, and I counted two interesting things. The first was that, according to the hon. Member for Runnymede and Weybridge (Mr. Hammond), the Conservatives did not cut the dividend tax credit; they simply adjusted it. I think that we will keep a close eye on that type of rhetoric, and perhaps we will find that it applies more widely when we come to consider their record in government.
	The more substantive point that the Conservatives made, which we Labour Members completely and totally reject, concerned the idea that my right hon. Friend, who has done a superb job as the Chancellor of the Exchequer, was, in any way, shape or form, not straight or honest about the changes that he made in the Budget in 1997. That is a charge that we completely and totally refute.

Peter Lilley: Will the right hon. Gentleman give way?

John Hutton: I will give way in a minute; I will refer to the right hon. Gentleman's contribution soon.
	We heard excellent speeches from my right hon. Friend the Member for West Dunbartonshire (John McFall) and my hon. Friends the Members for Coventry, North-West (Mr. Robinson), for Birmingham, Erdington (Mr. Simon), for Caerphilly (Mr. David), for Amber Valley (Judy Mallaber), for Stourbridge (Lynda Waltho), for Wirral, West (Stephen Hesford) and for Hartlepool (Mr. Wright). My right hon. Friend the Member for West Dunbartonshire referred to the hypocrisy and hullabaloo around the issue, and in particular to the way in which the shadow Chancellor presented his so-called argument. He made the important point that in the Chamber, personal abuse and personal attacks are not really a substitute for a sound argument. There was no substance whatever to the remarks that the hon. Member for Tatton (Mr. Osborne) made today; that is absolutely clear.
	My hon. Friends the Members for Birmingham, Erdington, for Caerphilly, for Amber Valley, for Stourbridge and for Wirral, West all argued in principle in favour of the changes that we made in the Budget of 1997. They did so with conviction, and their remarks were in contrast to those made by Opposition Members. My hon. Friend the Member for Hartlepool made an excellent speech. I think that I am right in saying that he was the only accountant to speak today.  [Interruption.] Well, there may have been other accountants, but my hon. Friend has my business any time that he wants to take it on.
	The hon. Member for Twickenham (Dr. Cable), who spoke for the Liberal Democrats, suggested that the attacks made on the Chancellor by the Opposition were unfair, but said that he would vote with the Opposition anyway. That summarises in a nutshell the position that the Liberal Democrats usually end up taking. Of the speeches made by Conservative Members, I shall refer briefly to those made by the former Chancellor of the Exchequer, the right hon. and learned Member for Rushcliffe (Mr. Clarke), who I see is in the Chamber; the right hon. Member for Charnwood (Mr. Dorrell), who served with the former Chancellor in the Treasury; and the right hon. Member for Hitchin and Harpenden, who also has an interesting track record on the matters that we are discussing. He served in the Treasury at the time of cutsI am sorry, adjustmentsto the dividend tax credits. In additionand this is probably a unique achievementhe was a Minister during the pensions mis-selling crisis. Not only that, he was the author of the disastrous reforms that the Conservative Government proposed to make to the basic state pension, which, we should remember, would have abolished personal tax relief for pensions. He asked me earlier to give way, and I am happy to do so now.

Peter Lilley: The right hon. Gentleman said that he entirely repudiated any suggestion that the Chancellor had been less than forthcoming about his announcement when he made the Budget statement. Can he tell us where in the Budget statement the Chancellor indicated that the measure would take 5 billion out of pension funds, or even a penny?

John Hutton: I will furnish the right hon. Gentleman with the details, but I think that he will find that figure in the Red Book. He should remember that that is part of the Budget process.
	I always carefully follow the remarks of the right hon. Member for Charnwood because I have a lot of respect for him both as a Member and as a former Minister. However, I must correct one claim that he made, because it was not correct. He said that the dividend tax credit changes that my right hon. Friend the Chancellor introduced in 1997 broke the principle that pension contributions are exempt on investment and taxed on receipt. I remind him that my right hon. Friend's changes did not change any of the fundamental principles of the taxation of pensions. Contributions to pensions remain exempt from tax and, indeed, my right hon. Friend has introduced important simplifications to the tax regime for pensions. Investment returns in pension schemes remain exempt from taxation.

Stephen Dorrell: That is simply not right. Payments by companies of dividends come out of taxed income. Dividends received by pension funds are therefore taxed income. It was to avoid that double taxation of income received as dividends being taxed again when distributed as pensions that the original imputation system of corporation tax was established. It was precisely to avoid the double taxation that the Secretary of State says does not exist.

John Hutton: No, I think that the right hon. Gentleman has conflated a number of different arguments. That was, however, a useful clarification of his speech [ Interruption. ] It was, because it contradicted what he said in his speech, in which he made it clear that we had broken the principle of investments being exempt from taxation.  [ Interruption. ]

Mr. Speaker: Order. Hon. Members must let the Secretary of State speak.

Hon. Members: We want the Chancellor to speak.

Mr. Speaker: Order. The Chancellor spoke earlier. It is important that hon. Members allow the Secretary of State to speak.

John Hutton: I am grateful, Mr. Speaker. The problemand it is a problem not just for the right hon. Member for Charnwood but for all the Opposition Members who spoke in the debateis that the logic of his speech is that he would reverse the changes to dividend tax credit. That is the one policy that we all waited to hear about today, but we did not hear it. It was conspicuous that in the speeches of Opposition Members [ Interruption. ] There is no point in their trying to barrack me and make their speeches again, as they had an opportunity, which they completely fluffed. It is evident to everyone watching the debate that the Tories have no policy to address the problem that they have spent the past six and a half hours describing in detail to the House.
	Opposition Members have had plenty of time to make their position clear. We made those changes to the tax regime 10 years ago, and there have been two general elections in the intervening period. Just to remind them, we won those general elections because of the stewardship of my right hon. Friend the Chancellor and because of the way in which we have governed the country. After two general elections and 10 years of waiting, there is still no hint of a Tory policy and no commitment to reverse the changes about which they have complained. This has been one of the worst performances by the Opposition that I have witnessed in my time in this House.
	According to Conservative Memberswe heard this throughout their speechesthis Government supposedly inherited one of the best pension environments in the world in 1997, which explicitly underpinned most of what the right hon. and learned Member for Rushcliffe said in his speech. The only problem with that argument is that the facts tell a different story. In 1997, nearly 3 million pensioners were living in poverty. Many women were denied the opportunity to secure a full basic state pension in their own right, and carers were similarly mistreated by the system. It was no golden age of private pension schemes, either. The mis-selling of private pensions, which was overseen by the previous Government, many of whose members are still here today, was a national disgrace. Millions of workers had no access to occupational pensions. That was no utopia.
	We need to be clear about one more thing, too. As my right hon. Friend the Chancellor has said, the shift from defined benefit schemes towards defined contribution schemes is not a UK phenomenon brought about by changes to corporation tax. Far from itas the Chancellor and many Labour Members have made clear, the effects of demographic change have impacted on pension schemes and systems right across the globe. My argument today is that this Government have acted properly and responsibly in meeting the challenges that our pension system has faced since 1997.

Kenneth Clarke: I do not understand the point that the Secretary of State has just made about the situation in 1997, when, of course, everything was not perfect in the occupational pensions world. Does he accept that it was precisely because the three new Labour leaders believed that pension funds were in an impregnable financial position that they thought that the pension funds could stand a 5 billion a year loss without anybody having anything to worry about? There has been a move away from direct benefit pensions elsewhere, because other problems have occurred for pensions everywhere. In this country, the avalanche out of defined benefit schemes into other types of schemes, or none at all, grotesquely exceeds anything in any other jurisdiction.

John Hutton: I am sorry, but I cannot remember what the right hon. and learned Gentleman was saying at the beginning of his intervention. The changes were part of a series of reforms to corporation tax that were designed to address what many people, including the Conservative party when it was in government, had identified as a distortion in the tax system. The Conservative Government made their five separate adjustments to dividend tax credits, but the point of my right hon. Friend's reforms was to make sure that we could then go further and cut corporation tax. They cut the dividend tax credit, but they never cut the main rate of corporation tax, which is the problem that the right hon. and learned Gentleman must address.
	I have only two minutes left, and everyone will be glad to know that the remaining 12 pages of my speech will probably never be heard in this House.  [ Interruption. ] Having read them, that is probably a good idea. In conclusion, the Opposition have made a lot of the process and also the policy behind the changes made by my right hon. Friend, but we have still not heard the Conservative response to any of those changes, and I have a very strong sense that we will never hear it.

Patrick McLoughlin: rose in his place and claimed to move, That the Question be now put.
	 Question, That the Question be now put,  put and agreed to.

Question put accordingly, That the original words stand part of the Question:
	 The House divided: Ayes 233, Noes 298.

Question accordingly negatived.
	 Question, That the proposed words be there added,  put forthwith, pursuant to Standing Order No. 31 (Questions on amendments):
	 The House divided: Ayes 297, Noes 230.

Question accordingly agreed to.
	Mr. Speaker  forthwith declared the main Question, as amended, to be agreed to.
	 Resolved,
	That this House notes and welcomes the acts of this Chancellor and Government to tackle the legacy of pensions mis-selling, support occupational pensions through a Pension Protection Fund set up for the first time and a new Pensions Regulator, further support 125,000 people through the Financial Assistance Scheme whose occupational pensions were affected by employer insolvency, set out the long-term framework for pensions through the new Pensions Bill, including re-linking the uprating of the basic State Pension to average earnings, introduce a new scheme of low cost personal accounts and stakeholder pensions of which over three million have been created, remove the dividend tax credit, make reductions in corporation tax which have contributed to the 50 per cent. rise in business investment and helped the UK economy to grow in each of the last 39 quarters and introduce the winter fuel allowance, free television licences and the Pension Credit to provide an additional framework of support for today's pensioners.

PETITION

Pension Entitlement

Alan Simpson: After a long day debating pensions, it is appropriate to present a public petition on pension entitlements. The petition is signed by 4,231 people and states:
	The Petition of residents of Nottingham and others,
	Declares that there is a public duty to restore the pension entitlements of the 85,000 pensioners whose lifetime contributions disappeared in collapsed pension schemes. The Ombudsman's report,  Trusting in the Pension Promise, concluded that successive Governments ignored warnings that the Minimum Funding Requirement did not adequately protect workers' pensions. The Petitioners believe that Government has to accept responsibility for ignoring these warnings and concealing them from the public.
	The Petitioners therefore request that the House of Commons press the Government to introduce legislation restoring full pension entitlements to those who have lost their pensions.
	The House will have a chance to do so tomorrow.
	 To lie upon the Table.

FINANCIAL EDUCATION

Motion made, and Question proposed, That this House do now adjourn. [Mr. Cawsey.]

Phil Willis: I expect that you, Mr. Speaker, and I were fortunate when we were growing up some 50 years agowhen we were both teenagersin that the need for financial education was limited. The only problem that my family had with finance was managing until the next pay day. Credit cards, individual savings accounts, overdrafts, student loans, annual percentage rates or even mortgages were as remote as they were irrelevant. I am glad to see that the hon. Member for Dewsbury (Mr. Malik) is in his place, as he is from Burnley, where I grew up.
	Financial education, as taught by my father, consisted of the simple philosophy of Mr. Micawber:
	Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
	Today's young people face a more complex financial picture. They live in a country where last year 107,000 people became insolvent, 5,300 people a day went to Citizens Advice for debt advice and our combined consumer debt reached 1.3 trillionmore than our GDP.
	It appears that as we have become more affluent we have abandoned not only the philosophy of Mr. Micawber, but our senses when it comes to finance. Right hon. and hon. Members will have dozens of examples of constituents who are in dire financial situations, often through an inability to budget or to understand financial products, and a failure to comprehend financial terminology. That is hardly surprising. An Institute of Financial Services School of Finance survey in 2004 revealed that 79 per cent. of people did not know what APR meant, 30 per cent. did not know what a standing order was, 20 per cent. could not understand the concept of inflation, and 50 per cent. did not know what 50 per cent. was.
	Inevitably, that lack of financial knowledge is especially prevalent in the young. A Finance Society survey in January 2007 found that most youngsters thought that an ISAan individual savings accountwas an iPod accessory, and that winning the lottery was the best way to fund retirement.
	I am sure that no one in the House would dispute that people need to be better educated financially, or that that education should start in our schools and colleges.

Adrian Bailey: The hon. Gentleman has mentioned credit cards, but is he aware that a survey found that young people thought that the credit card with the highest APR was the best one to have?

Phil Willis: The hon. Gentleman makes my point exactlythat young people's inability to understand simple terminology is a serious problem. To be fair, the Government's 2007 publication entitled Financial Capability: the Government's long-term approach said that all children and young people should
	have access to a planned and coherent programme of personal finance education, so that they leave school with the skills and confidence to manage their money well.
	Most people would agree with that, but the reality is that financial education is a lottery for the vast majority of our young people. Until it is recognised that financial education is a key skill that should sit alongside literacy, numeracy and ICT as a stand-alone element in the national curriculum, it will remain a lottery, and the nation will continue to regard financial illiteracy as the norm.
	Sadly, the Department for Education and Skills does not agree that a stand-alone element is needed. Indeed, on 17 February my hon. Friend the Member for Falmouth and Camborne (Julia Goldsworthy) asked the Minister for Schools whether he intended to bring forward proposals to introduce a compulsory study of financial literacy in the national curriculum. The Minister said that he had no such plans, and I want to ask him why. The Government have stated that they are already delivering personal financial education through personal, social and health education, enterprise education, citizenship education and, from 2010, GCSE functional mathematics. However, like many others interested in these matters, I remain unconvinced that those initiatives, either alone or combined, are sufficient to equip our young people with the skills needed to manage their finances. I shall explain why.
	First, Ofsted says that many secondary schools are failing to teach PSHE at all, and that only a handful of the ones that do include personal finance. Even then, the amount of time devoted to the subject is minute. The Government are considering adding an element of economic well beinganother Eto the PSHE course, yet that will not improve matters. The new programme will be known as PSHEE but, like the existing programme, it will be non-statutory and non-examinable. In other words, it will simply be optional.
	What about enterprise education, which is supposed to ensure that all 14 to 16-year-olds have five days enterprise activity? I welcome wholeheartedly the commitment to work-related learning, but it is related only tenuously to personal finance skills. Again, the amount of time allocated specifically to personal finance education will be very limited andcruciallywill also be optional and non-examinable.
	So what about the citizenship programme? The Government claim that that includes financial education, but once more there is little evidence that schools are offering any form of financial education in the citizenship programme. I welcome the fact that financial capability appears in the suggested syllabus, but many schools do not teach it at all. The citizenship programme may be compulsory, but financial education is not a compulsory part of it, as it clearly needs to be. Even the examinable GCSE short course in citizenship contains no questions even vaguely related to personal finance.
	Earlier today, I double-checked this by reading the specimen exam papers from OCR and Edexcel, neither of which contains this year a single question relating to personal finance. That cannot be right. The Education and Skills Committee concluded last month in an excellent report on citizenship that it is poorly taught and patchy at best. With ever-increasing pressure to deliver greater concentration on elements of identity, diversity and belonging, I fear that citizenship will fail to provide a sound vehicle to deliver core financial skills.
	So what about functional maths? Ministers have stated that the new functional maths GCSE, to be introduced in 2010 will include elements of financial capability. In evidence to the Treasury Committee published in November 2006, the ifs School of Finance expressed its concerns that the standards for functional mathematics published by the Qualifications and Curriculum Authority were inadequate. The Select Committee concluded:
	What is being masqueraded as financial capability is confined to recognising notes and coins and simple calculations using money.
	That is not financial education. Regrettably, it would appear that this latest Government initiative offers little other than a tasty soundbite but no real substance. Indeed, if I could make one plea to the Minister tonight, it would be to move away from the idea that maths is a natural home for anything relating to personal finance. Financial capability is first and foremost about behaviours, not about numeracy.

Adrian Bailey: Does the hon. Gentleman agree that one of the problems is that we do not have a cohort of teachers trained to teach personal finance as a specific subject?

Phil Willis: I certainly do agree. I will come on to that point in just a second.
	Of course, in looking at all the Government's financial education policies in the round, I am concerned that there is little if any evaluation of financial education programmes in our schools. Unfortunately, time will not permit me to elaborate, but I wish to alert the Minister to concerns raised in the Government's own report Financial education: a review of existing provision in the UK published by the Department for Work and Pensions in 2005. The report stated:
	Our review found that little formal measurement of the quality of financial education teaching
	a point that the hon. Gentleman made
	is taking place through Ofsted or any other inspection mechanism. Formal measurement is likely to reduce further with the new Ofsted inspection regime starting in September 2005.
	That is quite a damning comment.
	Sprinkling personal finance across the curriculum has done little to improve financial capability and there is little evidence to suggest otherwise, so it is time for a different approach. Academic evidence from Tennyson and Nguyen published in 2001 and from the university of Manchester in 2006 suggested that a specifically designated course in which students know that its total aims relate to areas of financial management is more effective than courses that cover a wide range of areas.
	The Manchester university report provides powerful evidence of the effect that financial education can have on behaviour and young people's lives. It found that the majority of young people taking a stand-alone financial educational qualification had made positive changes in the way in which they managed their money. Many changed to a different bank account; many looked for additional, non-traditional products such as mini cash ISAs and were fully equipped to handle their money when they went off to college or university. Ninety-five per cent. of students said that they were better able to manage their finances as a result of taking a dedicated stand-alone personal course.
	A further benefit of stand-alone qualifications is that we know whether any learning has taken place and thus whether changes in financial behaviour have occurred as a result. I cannot emphasise enough to the Minister that it is essential that any actions to improve financial capability are measurable. The simplest, most cost-effective way of doing so, which is most informative in terms of the data produced, is to offer a course that requires accreditation. I accept that schools will say that it is yet more to fit into a crowded curriculum, yet more than 100 schools are already doing the equivalent of a GCSE course sponsored by ifs School of Finance. If they can do it, we need to be able to do it in the schools where students will benefit the most.
	Almost every aspect of modern life in the UK involves some form of financial transaction, irrespective of our income, class, background or academic ability. Finance impinges on everything we do so it should be taught as a stand-alone component of the curriculum. I acknowledge that there are some excellent initiatives in financial education that deserve the highest praise. I fully accept that some schools are working within the Government's overall programme and delivering high quality. Initiatives such as the learning money matters programme funded by the Financial Services Authority, in which Personal Finance Education Group employees offer teachers support via e-mail, telephone and personal visits, are super.
	I welcome those small steps, but it is really the role of the DFES to equip teachers with the skills and confidence to teach the subject by introducing a personal finance element in teacher training programmes. At present, there is no such element in any of those programmes. Maintaining the current approach and pursuing the path set by the Government for the next 10 years will not deliver the objective we seeka financially literate society. I hope, however, that the Minister will at least reconsider functional maths in relation to personal finance. I hope that he will carefully consider the Select Committee report on citizenship in relation to financial education and that he will examine the possibility of incorporating an element of financial education in all teacher training programmes.
	Finally, I make a simple plea to the Minister. Will he look again at the evidence that supports making financial education a compulsory part of the national curriculum? Will he talk to the FSA, the School of Finance, the Institute of Chartered Accountants, the Finance and Leasing Association and the Council of Mortgage Lenders? Look at the evidence, Minister, and make new plans.

Jim Knight: I congratulate the hon. Member for Harrogate and Knaresborough (Mr. Willis) on securing this debate and on bringing an important subject to the attention of the House. Clearly he and I, and my hon. Friend the Member for West Bromwich, West (Mr. Bailey), agree that schools and colleges have an important role to play in ensuring that young people go out into the workplace with the skills they need to plan and manage their finances.
	Education has to prepare children and young people for the real world beyond the school gates, and financial literacy is a skill that every citizen needs to function effectively in society. As the hon. Gentleman said in his opening remarks, social, economic and demographic changes over the next few years will make that increasingly important. Young people in school or college today are likely to make several major career changes over their working lives. They will need constantly to develop their skills to stay ahead, through lifelong learning and more opportunities for flexible working. Meanwhile, increasing life expectancy means that people will need to plan for longer retirement. All that is alongside issues people already need to understand, such as student loans, mortgages and pensions.
	Many adults already struggle with those skills. About 15 million adults lack the numeracy skills to make appropriate decisions about saving; they find it difficult to make comparisons and weigh up different choices. With that in mind, my colleagues at the Treasury recently published a long-term strategy to develop financial capability for all, to which the hon. Gentleman referred. By coincidence I met Treasury colleagues today to discuss taking the strategy forward, with enterprise education.
	Over the long term, we want to ensure that all children and young people can access a planned and coherent programme of personal finance education, so that they leave school with the skills and confidence to manage their money well. What does that mean in practice? What will schools and colleges need to have in place? What do the Government and their partners need to do to offer schools the right support and resources?
	First, there is already considerable scope for schools to address those issues. The hon. Gentleman referred to some good examples, although he expressed impatience that they are not universal. There is scope not only within personal, social and health education, but also in citizenshiphowever flawed the hon. Gentleman may think it ismaths, business studies and careers and enterprise education. Within PSHE, pupils develop their financial skills through age-appropriate activities. Younger children are introduced to ideas such as saving and planning, whereas older pupils study more complex concepts, such as influences on saving and how to budget.
	Within citizenship studies, older pupils must study broader financial issues such as how the economy functions. I accept that that is not directly personal finance, but it provides an important context in which to judge personal financial decisions.
	The Government are spending 60 million each year until 2011 to help schools embed enterprise across the curriculum, helping young people to develop creativity, innovation and risk-management skills. The focus on enterprise will, I hope, help pupils to develop financial literacy and business understanding. Clearly, they are not the same thing, but there is a good relationship between the two. If young people are developing enterprises in schools, as many are, they are learning about budgetary processes and financial management for those small business that they are developing. They can then, in time, apply some of those principles to their own finances.
	We think that we could do more to help young people develop their financial capabilityhence our proposed changes, outlined within the Treasury document. For example, we will introduce a new child trust fund payment for seven-year-olds from 2009. We think that that is an important opportunity for children to start to think about finance, so we will explore ways of making the most of that with appropriate resources in schools.
	The current review of the secondary curriculum provides an opportunity to consolidate financial capability within the curriculum for older pupils. The review is designed to reduce prescription and increase flexibility, offering the kind of personalised learning that we think is essential if we are to continue to drive up standards.
	The proposed new curriculum, which is out for consultation until the end of this month, revises the PSHE curriculum, so pupils will study economic well-being as a discrete strand of work. Personal, social and health education will then become, as the hon. Member for Harrogate and Knaresborough said, PSHEE, standing for personal, social, health and economic education. That would include learning how to manage money, addressing concepts such as savings, investment and trade, and understanding financial terms relevant to pupils' everyday lives.
	The development of functional maths is important: it will be an essential component of GCSE maths from 2010. I accept that it will not address behaviour, which should be addressed in another context, but no one will be able to pass GCSE maths without demonstrating that they are able to apply their theoretical knowledge of maths to real-life situations. For example, students may be asked to calculate interest repayments on a mortgage or think about the cost-effectiveness of various mobile phone tariffs. As those examples show, financial literacy is an important element of functional skills and students will need to demonstrate that they have a solid grasp of those issues as they study the fundamental subject of GCSE maths.
	Functional mathsalongside literacywill also be part of the new diplomas. Those enthused by concepts of financial literacy who want to develop their skills further may want to pursue the new diploma in finance and business administration, which will be available in some areas from September 2009 and will be an entitlement for all pupils from 2013. The financial services sector skills council will be leading the development of this diploma, ensuring the content will effectively prepare young people for careers in the sector or for further study.
	Colleges in particular have a critical role to play in helping those adults whom I mentioned earlier who struggle to make sense of the financial world. As part of our overall skills for life strategy, the Basic Skills Agency has had 3 million of funding to invest in a financial literacy project. It has developed materials and learning programmes for use in FE colleges. York college, for example, has used those resources to embed financial literacy within different vocational courses.
	It is also critical, as both hon. Members have mentioned, that teachers in schools and colleges have the support and training they need, so that they are confident in helping young people to develop their own skills and knowledge. There is a newly formed professional subject association for PSHE, which will support teachers to plan, deliver and evaluate better PSHE provision, including personal finance education.
	We are updating the curriculum guidance for personal finance education this year. The Qualifications and Curriculum Authority has also recently published guidance for PSHE, which covers financial education, and from September, the functional mathematics element of the new diplomas will become part of the curriculum for trainee teachers of the relevant age group. We will also be examining whether more support is needed for PSHE teachersperhaps, for example, by developing a new module in financial capability in their continuous professional development programme.
	I must also mention, as the hon. Member for Harrogate and Knaresborough did, the excellent support made available by the Personal Finance Education Group, an educational charity primarily funded by the Financial Services Authority, whose learning money matters programme offers a one-stop-shop for schools to get advice on planning their provision for financial education. It aims to reach 4,000 secondary schools directly by 2010. Because of its significant expertise in this area, we have asked it to redevelop the guidance on teaching financial capability that I referred to before. Finally on this point, the new national centre for excellence in maths teaching will play an important role in supporting better teaching and sharing good practice in financial literacy in respect of functional maths.
	I have talked about the range of activities that we are undertaking in this area, but I should comment on the principal point that the hon. Gentleman made about compulsion. We do not believe that it is necessary or desirable to make financial capability a separate statutory area of the curriculum. In fact, we do not think that making all elements of the PSHE statutory for secondary school pupils is necessary, although all are required to cover sex, drugs and, not rock and roll, but careers education. In essence, we are trying to reduce the level of prescription from Whitehall and offer more flexibility on the ground for schools.
	Making the subject compulsory will not necessarily improve the way in which it is taught, and we think that that is the crucial factor that we need to focus on. We need to concentrate on improving delivery in the classroom. That means a focus on ensuring that teachers have the skills and confidence to teach those subjects effectively. We think that it is more important that we invest in the work force and ensure that the appropriate resources are available to them. Teachers themselves agree with that approach. An FSA survey of teachers showed that there is little support for personal finance to be made statutory and that what schools need is flexibility within the curriculum.
	Moreover, PSHE and citizenship already covers some elements of financial literacy, and that will be enhanced by the proposed changes in the secondary curriculum review, which, as I have said, will free up time. I hope that freeing up time, particularly in key stage 3, will mean that schools will opt to develop further their enterprise and financial education, alongside other things such as learning outside the classroom and some of the other skills for life that can make school more engaging during those critical first three years of secondary schoolwhere there is a secondary system, rather than a middle school system, in place. That will mean that pupils can continue to be engaged in those areas, but also in their academic learning, as they go on.
	For similar reasons, we do not believe that it is appropriate to make it compulsory for every pupil to have a qualification demonstrating their financial capability. The qualifications are available to the schools that wish to provide them. Some may choose to use the time that they will have in key stage 3 for that purpose. But it is more important that young people acquire the relevant skills.
	I hope that I have reassured the hon. Gentleman that I have listened to his argument. I will, of course, reflect on what he said. I hope that he is persuaded that the Government and I are determined that financial education must be part of our education system and that we are implementing changes to ensure that financial literacy is embedded at every stage. We might disagree about some of the practical measures to be taken, but the commitment is certainly there and we want to be judged on our success in delivering that commitment. I am confident that we are offering teachers the right support to teach those vital skills.
	 Question put and agreed to.
	 Adjourned accordingly at two minutes to Eleven o'clock.